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Friday, December 2,2011

Ask Gabe

Q: Do you have any advice on how to save up for a down payment to purchase a home? And what would be an adequate deposit? -Jennifer Riding, Santa Rosa California

A: Part of being a broker is helping people reach their goals of home ownership. Many people we work with are not ready to buy a home when first talking to us. Often credit, income and savings need to be tweaked first. That is why it is very important to speak with a lender first before you start house hunting. A phone call now can save you misery down the road. Something as simple as going on The Cash Diet for a few months can mean the difference between getting a house or not.

THE CASH DIET The Goal: Save money to build a nest egg for a decent down payment

The Method: This is really easy as there is only one rule; only use cash! Banish all debit cards, credit cards etc. and use cash for everything you buy beyond your basic bills; electricity, phone, mortgage, rent etc. You can still pay with checks/online but for everyday switch to cash. That means cash at the gas station, cash at the grocery store, cash at the mall, and cash at lunch etc...

Why it Works: 1) It makes you aware of how much you spend and by doing this you make better choices. You are far less likely to be lured into “impulse buys.” 2) You plan your purchases. After the first week you realize in order to not “hit” the ATM machine every day you will need to plan. Ideally you want to “hit” the ATM no more than once a week. 3) It is eye opening. Once you do The Cash Diet for a few weeks your entire perception of money changes. 4) Random Bonus to Diet: You may actually lose weight and improve your health. Studies have shown you are less likely to buy junk food and drinks when you pay with cash Bottom Line: You will not believe how effective it is until you try it. Money is money no matter how you spend it but it has been proven it is far harder to hand over actual dollars then to swipe your ATM card.

Saving enough to make a decent down payment requires discipline and honesty from the buyers and the realtors. Not having enough of a down payment (25-30%) can be dangerous and irresponsible.

The conclusion for an insufficient deposit from the purchaser’s perspective is the threat of running into too much debt and it is irresponsible from a realtor’s perspective to support the purchase. If we step back for one moment both the agent and the buyer need to apply the honest truth. The agent can save both his integrity and his or her client’s financial future by tabling the purchase and saving the contract for a later date until enough of a deposit is saved.


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