Whether your dream home includes a large yard and swimming pool or en suite bathrooms with updated appliances, you have to start somewhere! When you’re a first time home buyer, obtaining that dream home might seem a distant fantasy. How can you finally end up in that perfect home, if you can’t even afford your first house? These first time home buyer tips will give you a little relief from that stress. Saving money for your first home doesn’t have to break you, or your bank!
Calculate Your Budget
Getting started is simple. Just figure out what you can actually afford. That includes all elements of this huge purchase – things a first time home buyer might overlook. Total home costs include mortgage, property taxes, and home insurance. Use a first time home buyer calculator to get you started.
The down payment will be your first, big savings goal. On average, you’ll need to save 20% of the total value of the home for the down payment. Accumulating 20% will give you more options from lenders, and much better rates than a lower amount.
There are some programs offered that focus on smaller down payments (Fannie Mae, FHA, Freddie Mac, etc.). In fact, you could pay as low as 3%. This might seem appealing but keep in mind that there are consequences. You will most likely still have to pay private mortgage insurance each month until you’ve reached 20% equity in your home, which will take years. If you don’t mind the added length of time, these lower down payment options might be best for you.
Keep in mind that the more money you want to save, the longer it will take if you are saving at a consistent rate. If you need the money quicker, you’ll obviously have to save more. For example, if you need to save up $10,000, and can afford $555 a month, you’ll reach your goal in just 18 months. The general rule of thumb is to put at least 20% of your monthly income into your savings account. This money saving calculator can be a big help.
Start Saving- Automatically
Now that you know how much you’ll need to save, you can start! The easiest way to ensure that money is consistently being set aside is through automatic transfer. Once your paycheck is deposited, a pre-determined portion of your check can be allocated into another account. This transfer should go into a savings or separate checking account, specifically for your home. You can opt to automatically transfer a set dollar amount per paycheck or percentage. This consistency will add up!
The amount you save every month will be determined by the total amount you need as a first time home buyer.
Buying your first house can be intimidating, but there are plenty of ways to break things up into manageable tasks. Once you’re on the right track to saving for a down payment, you’ll feel better prepared to tackle the next steps in the process. Much like the building stage, buying a home starts with a solid foundation – make sure yours is strong.
Pay Off Debts
When you’re a first time home buyer, saving money for that home might blind you to other debts you have. Keep in mind that your housing costs should not exceed one-third of your total income. When you are already paying off credit cards, student loans, and other big debts, it can make saving money seem impossible.
Pay down your existing debts until they are more manageable before you begin saving for your first home. This will help take some of that financial pressure off your back and allow you to save faster. When you’re in a better position to begin adding money to a savings account, your finances will be more flexible.
Reduce Monthly Expenses
Once your money begins automatically moving from your paycheck into a savings account, there’s no doubt you’ll notice. Having a large chunk of that paycheck in savings can feel like a big hit! Start off steadily and easily with a blanket 10% everywhere. That means you’ll cut 10% of your total budget for every expense. For example, if your grocery budget every month is $100 per week, you’ll now have $90 to spend. It’s these small steps that add up over time. They also help you acclimate to a smaller amount of disposable income.
Save, Save, Save!
Throughout the years, you’ll receive bits of extra cash. You might host a garage sale, receive cash as a gift, perhaps a bump on your commission check at work or a nice income-tax refund. By saving some of this money, you could boost to your savings account and might even help your interest grow faster. You could even shave off years from your savings goal!
Keep an Emergency Fund
Things will happen throughout the year that you cannot stop. Your car will need new tires. An unexpected surgery might be needed. You may even temporarily lose your job. This means you’ll need to be ready to pay for them, when and if they occur. Having an emergency fund is something every first time home buyer needs. Your emergency account should have money in it prior to saving for your down payment.
Print a photo of your dream home and put it on your refrigerator. Change your phone’s home screen to the house you are saving to buy. Keep that goal at the top of your mind, all the time. This is one goal that needs your commitment because it’s a long-term goal. You won’t get immediate gratification from this savings plan, but you will reach your goal. Remind yourself in every way possible about the house you want and keep that dream alive every day.
Saving for your home doesn’t have to be as overwhelming as you might anticipate. A first time home buyer can save a large sum of money if that house is something they really want. Figure out what you need, start saving and stay on target for that ultimate goal of your own dream home.