$5,000 saved, what do I do?

Question

I am a beginner and only have $5k in savings. What are the options I have available? I would prefer to start with a townhome and rent out the other room while I live there as well. Trying to move out of my parents house.

Nathan Harden · Answer

I will keep my response short and sweet.

Keep saving

Esta Ryder · Answer

I would suggest going FHA with 3.5% down.  You can put your closing costs in your loan.  I have no idea what a townhome costs in your area. For the sake of discussion, say $250K.  You would need $8,750.  So you are almost there with your savings.  A few options to raise funds:  your parents cold gift you the money, you can take it out of a retirement account you might have (check with your financial advisor for any fees/penalties before doing this), or use your tax return if you get one (I have several clients who have done this).  If you haven't been preapproved yet, do that first.  A lender can give you other options or helpful information and explain what I mean about putting your closing costs in your loan if you're not familiar with that.  Good luck!

Troy P. · Answer

If $5,000 is the only cash you have in your posession, I would keep saving (or borrow from friends/family) until you have at least $10,000.  You say you prefer a townhouse so it sounds like you've been shopping around.  What are the prices like in your area?  How much would 3.5% be on an FHA loan?  Are you working with an agent or looking off market?  Have you talked to a mortgage broker, gotten prequalified, and looked at all of numbers and costs involved?  Spoiler alert, it's a lot.  You can try asking the seller to pay for your portion of the closing costs, saving you thousands but ultimately putting most or all of that back into the loan via purchase price.  If not, you should be able to add those costs to the loan regardless of seller acceptance.  Most townhome communities also have an HOA involved so be sure to consider that cost when running the numbers.  I've seen those typically cost between 100-300 per month.Be sure to run your numbers through mortgage calculators and include taxes, insurance, PMI, and any HOA dues.  If the costs are less than 33% of your gross monthly income, you may be on the right track.  Good luck!

Also, just because you plan to rent out a room, don't rely on that as a requirement for paying your mortgage or other obligations.  Your plan could change and you don't want to be stuck needing a roommate just to pay your bills.  If you can't afford the home on your own, then you need to look at other optons.

Lawrence Potts · Answer

@Christina Banks, a lot of people here have mentioned the same thing that I am going to second: you should save up a bit more. Yes, you could go $5,000 for a down payment going FHA, but you may need to pay for closing costs which could be around 3-5% of the purchase price. Also, you may have unexpected repairs. I'm assuming when you say "in your savings" you may not have an emergency fund too. 3-6 months of your net monthly income would be ideal to have in your emergency account that will not be used towards the financing of your future purchase.

We are missing some information to help you better though. We don't know how much you make and we don't know how much you keep. If you are bleeding out money through expenses, we need to find a way to increase your income and see if there are any expenses you can reduce.

I highly recommend finding a way to rapidly increase your income first and then use that to buy your first property. Check out some of Graham Stephan's videos on youtube about how to be frugile and Ryan Pineda's videos about how to increase your income or side hustles. I don't know your income but you should have an emergency account outside of what you're saving for a home.

Hope that helps! I was right where you were not that long ago, and I'm not that much farther ahead! Keep learning, invest in yourself and your education. Ask questions, see how you can serve others, and try to learn something new every day.

Ryan Kelly · Answer

@Christina Banks save more money would be my suggestion. You don’t want to own a property and then not be able to fix it when you need a repair. Don’t be property rich and cash poor. That’s a very difficult spot to be.

Steven Foster Wilson · Answer

Hi Christina, welcome to BiggerPockets! I'd have to say, build up your capital more so that whenever the time comes, you'd be able to fix any fast. You don't want to end up in a house that will sit for a long time waiting to get fixed because you have no funds left to take care of it. I'd say FHA is a great starting point for you, talk with local lenders about their first time home buyer programs, some have 0% down, no PMI, etc. You can do Househacking and this can allow you to get started with appreciation and cashflow with very little down, you can even BRRRR it like I did if you add value! Hope this helps and best wishes on your real estate journey!

Josh Young · Answer

Talk to a lender to make sure understand the rest of the requirements to get a mortgage such as DTI, pay stubs, W-2, tax returns, and credit score. You should be able to get a seller to pay your closing costs in most markets right now, so that should help with your limited available cash, but I’d save to make sure you have access to 6 months of PITI to give you time to pivot just in case of emergency, you don’t want to get foreclosed on if you lose your income suddenly.

Ben Shelbourne · Answer

$5,000 isn't enough to get started but you could look into Chenoa. It is a down payment assistance program which can cover both down payment and a portion of the closing costs.

Jaron Walling · Answer

Agree with @Troy P. about savings, specifically emergency savings. If this is truly the only cash someone has they should not be buying property. Continue renting, saving, and doing market research until the time is right. By then that person should be armored up with good credit, low DTI, prequalification from a lender, and increased investor knowledge. Some of these things require sacrifice.

Theresa Harris · Answer

The others have good suggestions.  I'd add that you will need money beyond your down payment for closing costs.  Also talk to a bank to find out how much money they will lend you and then look to see what that will buy you.

Condos are less expensive, but they also have condo fees that add up and if the building isn't properly managed, could cost you more.

$5,000 saved, what do I do?

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