Are you considering a large purchase like a home or several acres where you can enjoy nature or grow your own vegetables? The first thing you need to do is assess your current financial situation.
Know Your Finances
Pull together a basic financial statement that will give you a point-in-time picture of where you stand financially. Many web sites have free, downloadable financial statements you can complete and print for your records. The financial statement asks you to list assets (bank balances, real estate, stocks, and savings, etc.) and also asks you to input any debts you have (car payments, rent/mortgage, credit card, etc.). Knowing whether you have a healthy debt-to-asset ratio or owe more than your assets are worth will help you start planning for your big purchase.
Once your financial statement is complete, ask yourself these questions to determine the next steps to take: Can I pay for that big-ticket item in cash? If you have the financial resources already available, that’s great! But before you pay cash, ask yourself: Is it wiser to pay cash and deplete my financial backup, or would it be better to take out a loan for all or a portion of the purchase and retain the cash for an emergency? Paying cash may not always the best decision, even if you have that option available to you, especially with interest rates as low as they have been in recent years.
What is my credit score?
If you’re considering taking out a loan, check your credit score through Equifax, TransUnion or Experian. While the average credit score is around 700, excellent credit usually applies to anything 800 and above. Having a lower credit score will affect both your interest rate and how much a lender is willing to lend. Knowing what your current credit score is before approaching a lender will give you time to improve your situation should a lower score prevent you from getting a loan to make your dream come true.
How much do I need for the down payment?
Start by taking a quick assessment of what land and homes are going for in your area and determine the cost of what you want to buy. You can use a calculator to determine what your monthly payment might be. Land loans typically require a down payment of 15-20 percent. The more money you can put into a down payment, the more likely you are to get a lender to help with the loan and the lower your interest rate will be.
Do I have enough saved for a down payment, or do I have work to do?
Now that you know how much you need to save, do you have enough or do you have some saving to do? Start by looking at other debts you need to pay off. Consider what you need to pay off first and work on eliminating one debt at a time. The wisest decision is usually to pay off the higher interest loans first, but there could be other factors to consider, such as if you have a small balance loan that you could pay off quickly. Knowing that you’ve marked one thing off your to-do list can be a great motivator for future savings!
How do I save for a down payment?
Okay. You’ve figured out how much you can afford and how much you need to save in order to get there. Now, what?
As Tommy Petty wrote, “The waiting is the hardest part.” Saving up for a down payment for your dream can seem like it takes a lifetime to get to, and the truth is that if you’re buying something substantial, saving up for the down payment can take years. You can make that time go faster depending on how much you’re willing to sacrifice today to live your dream a bit further down the road. Can you give up vacations? Sell the shiny new car you’re making payments on and drive an older model instead? Put off new purchases that may cause you to slide back into debt? It may not be ideal for you to have a roommate or move to a smaller house or apartment in order to save, but lots of people do it as a means to realize their dream sooner. Only you can determine what sacrifices you are willing to make and still be able to have some fun along the way.
Secrets for Success
Separate the money you are saving for that big ticket item from the rest of your money. Open a savings account specifically for this expenditure so you will be less tempted to spend it on non-essential purchases and can judge your savings accurately. Being able to watch your dream come closer with every deposit you make can have the benefit of encouraging you along the way to stick with the program you have outlined for yourself.
Buying land is almost always a good investment. It can afford you with either an immediate way to produce income by raising crops or livestock or by increasing in value over the years as towns and cities grow up and out.
Although land and housing prices have fluctuated in the past few years, investing in a home or land you love is its own benefit. Additionally, any principal you are paying is an investment into something you can sell down the line.
AgSouth Farm Credit can help with land and rural home loans, as well as everything you need to make your farm or agribusiness successful.