As a young college student our most important priority is having $20 to go out this weekend or the money for our tuition, groceries and textbooks. While these expenses are important to pay we must also budget for some long term expenses like our first house, our kids going to college and (believe it or not) our retirement. These expenses are huge when we incur them, but planning for them now can make them more bearable.
For the expense of your first house it’s smart to plan on making a generous down payment on the house. During the subprime credit crisis some lenders where allowing homeowners to get loans with little or no down payments. You should plan on not falling into this trap (if they ever allow it again) and plan on making a 20% down payment on your home. For a $260,000 home (the price of the average listing currently in Kew Gardens, Queens, NY) that’s a $52,000 down payment. While $52K sounds like a daunting number, if you plan now it can be an achievable number.
I can plan on making that $52,000 down payment in five years by paying $859.76 a month an placing it into a “Growth Money Market Savings” account with Bank of America which as of today pays 0.4% interest if you have the money directly transferred from you bank of America checking account.
If you want to make that down payment on the house in only two years, you can make a monthly contribution of $2,162.34. Paying this higher amount will prepare you to make payments when you get the house. The mortgage payments (with a 30 year term) when you get the house at 5% interest will be $1,127.56 (plus taxes and insurance) so paying the higher amount will allow you to prepare financially for the costs associated with home ownership.
Remember, planning make everything better, the earlier the better. Stay tuned for subsequent posts on saving for your children to go to college and saving for retirement.
