Desperate for sales, builders are creating department store copies of layaway plans for prospective homebuyers.

Builder layaway plans will be rolling out shortly, encouraging buyers to commit to new home purchases before they have enough down payment funds to actually purchase the home. Plan names range from “PASSBOOK to the American Dream” from Hovnanian to “Buy & Save” plan from Beazer, but all work basically the same.

These plans are supposed to keep buyers on a ”steady savings track” and “act as a motivational time line” so potential homebuyers can accumulate their down payment funds by saving on a regular schedule. Should you save for a home with a department store Christmas club-like program run by a builder? “We kind of tagged on to that idea,” says Klinger of Hovnanian Mortgage. “We’re saving for a house the old-fashioned way, the way that it was always supposed to be.”

Hmmm… my B.S. detector is spiking out at this point…

First of all, you can save on your own by creating a Christmas club-type account at your bank. If you have automatic payroll deposits, you can have a portion of each paycheck automatically allocated to this account, and voila! you have a home purchase fund that’s fully under your control. Secondly, in California there are still down payment assistance programs through CalHFA. While not available to all buyers, these programs are available to many who will be financing under the various FHA programs. And lastly, why would you want to be committed to a builder for some future build date, unless they’re offering you some sort of additional incentives to do so?

Yeah, I’m a Realtor and I sell homes, but puleeeeze don’t insult my buyers’ intelligence!

If you’re working to save up that 3% FHA-required down payment, here are a few simple steps to help out:

• Set up a separate bank account as your “House Fund”. You can open an account normally called a Christmas Fund account at your bank, and use it for your house instead. DON’T TOUCH this account, other than for the purchase of your new home!
• Set up automatic deposits into your House Fund through your payroll department at work. They’ll let you allocate a specific dollar amount or a specific percentage of each check to this new House Fund bank account. If you’re an independent contractor, make a commitment to deposit a certain amount (or percentage) of each check into your House Fund.
• Monitor ALL of your expenses, including Starbucks and doughnuts, and cut the fat (no pun intended) out of your budget. You’ll be amazed at how much the small things add up! Use a debit card instead of cash so all of your expenses are recorded and easily monitored. You can use Quicken or Money to track your expenses to make this process a lot easier.
• Set a time line, and work backwards from there. If you want to purchase a home 6 months from now and need a $7,500 down payment for a $250,000 home, how much will you need to save from each paycheck to get there? If you’re starting with $1,000 in savings, you’ll need to save $6,500 in down payment funds, or $1,083 per month. If this is too much for your budget to handle, plan on extending that time line a bit so you won’t end up living off of Kraft Mac ‘n Cheese for the next several months.
• Talk with a lender about the availability of down payment assistance programs through CalHFA. It could be that you won’t need to save up all those down payment funds after all… wouldn’t that be nice? Your Realtor can help you with the rest… closing costs can often be negotiated as part of the purchase contract, whether you’re buying from the builder or from a regular seller.

Need help figuring this all out? Call me! You can reach me at 661.670.0349 or email me at Linda@SantaClaritaRealEstateBlog.com.

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