Saving for a down payment is usually the most difficult part of transitioning from renter to homeowner. Even with blemish-free credit and little debt to your name, setting aside the money needed to purchase a Chicago condo while balancing student loan payments and life’s general expenses isn’t always feasible.
The first thing to do is determine how much you’ll need for a down payment. For a median-priced Lincoln Park condo of $445,000, expect to shell out nearly $90,000 upfront. That doesn’t include closing costs, which could tack on another $10,000 (2 to 5 percent of the purchase price) or more.
These figures assume at least 20 percent down, a general suggestion for an ideal interest rate, but not necessarily a firm prerequisite. You could put as little as 5 percent down ($22,250), but expect to pay extra each month for private mortgage insurance (PMI). And, keep in mind your interest rate may not be as favorable – lenders will charge you more interest when you have a lesser stake in your home because their risk is higher. As a general rule, the bigger the down payment you provide, the more money you can save over the life of your loan.
With a little savviness and budgeting, compiling the large sum of money needed to become a Chicago homeowner is well worth the hassle. Consider the following tips to save for a down payment without draining your bank account(s) or suffering needlessly:
Streamline your rental budget
Luxury apartments are enticing, but not always budget-friendly. If you and a roommate or significant other are currently renting a two-bedroom, consider squeezing into a one-bedroom for a year or so. Then, you both can put the difference aside in a special home savings account. According to Zumper, the median price for a one-bedroom in Chicago is $1,530 per month while the median two-bedroom costs $2,110 per month. That $580 per month difference amounts to nearly $7,000 per year that could go toward your down payment instead of an office or spare bedroom.
Give up avocado toast (sort of)
Okay, so you don’t have to give up your avocado toast completely to afford homeownership. But, the Australian millionaire who made headlines last spring for claiming that Millennials can’t afford homes due to their avocado toast addiction may have somewhat of a point.
There’s no evidence to show that Millennials who eat out are stuck renting forever. However, a 2016 study revealed Millennials spend 44 percent of their food dollars on dining out. Across generations, restaurant spending jumped from 34 percent in 1974 to 50 percent in 2014. Not including incidentals like delivery fees and tipping, eating out in Chicago costs anywhere between $12 and $30 solely for an entrée, not including drinks or appetizers. Meanwhile, preparing a meal at home could cost you between $4 and $9 per plate. If you dined out four times per week, you’d spend $60 to $147 on entrees. If you only ate out once per week, you’d spend anywhere between $36 to $84 total. On the high end, that’s $3,120 saved over the course of the year.
Travel lighter
Now’s not the time to book an expensive five-star jet-setting experience halfway across the globe. But, everyone needs a getaway once in a while, even while confined to a tighter-than-normal budget. Look out for budget-friendly trips that won’t interfere with your down payment fund too much. Travelzoo is a prime resource for flash savings on local, national and international travel. For air travel, Google Flights compares all airline fares and allows users to filter by date, departure and arrival time. And, if you really want to cut back and avoid travel tickets and hotel fees, consider taking a day trip instead of a full vacation. You can head north toward Madison, Wisc., which is around three hours away and perfect for both outdoor adventurists and beer-loving college sports fans. Grand Rapids (Mich.) is another popular spot and a peak destination during the brisk fall season, particularly due to the town’s 19-day international art fair held across local museums, bars and public parks. You’ll still pay for gas, food, and entertainment for the day, but that pales in comparison to airfare, hotels, plus several days of food and drink.
The down payment is initially inconvenient, but the good outweighs the bad in the end. That money isn’t going down the drain – it’s funding your largest financial asset. You’ll thank yourself once you’ve closed on your first Chicago home and spend less on your mortgage than you do on your current rent each month.
