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October 27, 2007
Four Main Ways To Save For Your Down Payment

There are four classes of activities that I am focusing on to save for my mortgage down payment:

1. Saving Money - Frugality
2. Earning More Income
3. Investing Wisely
4. Optimizing Mind and Spirit

The first activity, frugality, is probably the easiest lever to increasing your wealth and savings. There are many things we all do that waste money that can be easily reversed to save money. For example, I used to eat out for almost every meal. Now that I am eating in for many meals and also getting many free meals at my office, I am saving $4,000 per year on food alone.

My second method of saving for my down payment, earning more income, is probably the most difficult longer-term lever, however it also has the greatest yields. The three ways of earning more income are getting promoted, starting a side business on the weekend, and/or getting a side job to supplement your current income. The key with this lever is to save all extra income you bring home. If you want to greatly escalate the rate at which you are saving, it probably makes a ton of sense to investigate these options, I know I am.

The third method I am leveraging for my down payment savings is investing. Many financial articles out there advise that you not risk any of the money you are saving for your down payment. They urge us to place our savings in high yield savings accounts. While I generally agree with this (and have most of my down payment savings in a high yield savings account), I also think it's very important to invest in stocks that offer a chance for great returns with a smaller portion of your savings. Why not add a little fuel to your savings by investing wisely in some short term stock plays?

There is a lot of press out there on the value of positive thinking. If you think positive thoughts, you will achieve your dreams. I totally buy into all of this talk and practice it every day. This is the forth and final way I am saving for my down payment: striving to think positively about my goal every day (imagine what it will be like in my own house) and additionally taking great care of my body via exercise and healthy eating. These activities support all of the three previously described activities and without it the entire system of saving could break down.

October 25, 2007
What Exactly is a Mortgage Down Payment?

As I write this article, the mortgage market is in big trouble. For the first time in many years we are seeing banks face difficult troubles because they offered many risky subprime loans over the past few years. Because of this, I am forced to save a down payment for my house, which at the end of the day is probably a good thing because I am in this for the long term and want to do the right thing as someone who is interested in owning his house for many years to come. There are many types of mortgage loans out there. It is beyond the scope of this site to describe them all, however there already exist many great sites out there which can help you on this top such as The Mortgage Professor. I am going to describe the mortgage that appeals to me the most and that I expect to use when I buy my first home, the 30 year fixed rate mortgage. With this mortgage, you lock in a fixed interest rate on the amount you borrow. With each monthly bill, you pay interest on the amount borrowed and also pay down part of the principal so by the end of the 30 year term you own the house (called building up equity). With this type of mortgage, the lender typically expects the borrower to put down 20% up front. This means you own 20% of the house in equity when you start your term. The reason for the down payment (or downpayment) of 20% is so the lender knows you have skin in the game and are committed to the house. With less of a down down payment, from the lender's perspective, you have less vested interest in being responsible and making all your payments (remember the lender's main job is to give loans to people that are responsible and capable of making all their payments). There are also benefits to the consumer of the mortgage in putting down a solid down payment: each dollar you put down as a down payment is interest free. The more you put down, the less interest on the mortgage loan you will have to pay. Over the 30 year period, the amount of interest you pay is staggering. Any way to bring this down is great. I am interested in saving for a good solid down payment because I want to own equity in my home right away and because I want to minimize mortgage interest I pay over time. An added benefit of less mortgage interest is also that you have more money left over each month so you are more comfortable and able to save for retirement in addition to owning your home.

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