Future homeownership looks bleak for most first-time home buyers. But that doesn’t mean it’s impossible. With a realistic budget and savings scheme, you can figure out how to save for a house.
Housing markets are overvalued and that means prices are high. There’s nothing you can do about that. But you can educate yourself on how much you need, what financial help is available to you, and ways to save money in a given timeframe.
With these 10 tips, you’ll be on your way to home ownership in no time.
Know How Much You Need to Save
28% of your stable monthly income should be the maximum for your housing expenses. This includes the money you’ll put toward the principal and interest, property taxes, various insurance and any homeowners association fees.
Once you know how much you’d be paying monthly based on your current income, add your down payment on top of the amount. That’s a separate item to save for.
You’ll also need to think about the (mostly one-time) fees you may pay as a homeowner. These include inspection fees, solicitor and conveyance fees, loan application fees, property valuation fees, and stamp duty.
Consider that if you choose to hire a mover, you’ll have to pay for that too. You’ll also have monthly electricity, telephone, cable, and internet fees to account for.
Know How Much You Can Borrow
Chances are, you’re going to be borrowing money to help pay for your home. Figure out that amount that you’ll qualify for and what you can afford.
Besides considering the above and how much you can realistically pay each month based on living expenses and income, don’t forget to consider your credit, dependents and other debts.
Your credit and debts will play a big role in how much you’re approved for. It also plays into your interest rate and loan terms.
Increase Your Ability to Borrow
Work to pay off any credit cards and other debts before applying to borrow money. With the less debt attached to your name, you’ll be able to borrow more.
Try these simple ways to help better your credit score:
- Talk to your bank about the possibility of decreasing your interest rates on your credit card to help you save
- Determine if a debt consolidation loan is right for you
- Dispute any errors on your credit score
When you’re saving for your house, all of these dollars count and a little goes a long way.
There may also be programs to help you purchase your first home. There are federal and state programs that can help with down payments, closing, tax credits, and interest rates. Research your country to see if there are any first-time home buyer program available.
Decide on Your Down Payment
How much you put down as a downpayment will directly impact how much you pay monthly and your interest rate.
20% is the usual route but you can put down more or less. Lenders may permit you to put down as little as 3%.
Opting to put less money down isn’t always the best choice. It comes at a higher rate and you may be charged Lenders Mortgage Insurance on top of it.
Consult with a Mortgage Lender on How to Save for a House
A mortgage lender will do all the math for you. They’ll figure out how much you qualify for and how much you’ll be paying back. And they’ll give you plenty of options based on your financial circumstances.
Once you’re ready to buy, a mortgage lender can give you your pre-approval letter. This includes how much you’ll be getting as well as the terms of the loan. This gives sellers confidence in your ability to buy their home.
Figure out How Much Time You Need
After figuring out how much you need to save, you need to figure out how much time you need to save it.
The less time you give yourself, the more you’re going to have to save. Unless you’re willing to cut significant expenses… which we’ll talk more about below.
Create a Budget
You need to assess where you’re currently spending your money and figure out what’s necessary and what isn’t.
Take one month to record all of your expenses with a spending tracker. Include everything from phone and internet bills to every coffee and dinner. After that month, figure out what expenses are non-essential and start cutting them out.
It might be helpful to look at finance apps as well. Through these apps, you can track all of your spending, make necessary transfers, deposit a check, and, on a few, even check your credit score.
If you don’t want to cut anything from your budget, you can consider ways to make additional income.
Become a deal-hunter. Look for sales on groceries and switch to service providers that offer cheaper services.
Make sure your budget accounts for unexpected expenses such as car repairs or medical costs. If anything unexpected comes up, you need to have the flexibility to cover the expense. Building an emergency fund before you start saving may be a good idea.
Where to Save Your Money
Saving for a home is not the time to be investing your money in risky ventures like stocks or real estate. To reach your goal in the timeframe you’ve determined, you need to keep that money safe.
Put your money away in a savings account that you can’t (or won’t) touch.
Make Your Saving Automatic
It’s hard to take large sums of money from every paycheck and put them in a place you won’t touch it. That’s why you should make your payments automatic.
Set up an auto-transfer each payday that transfers a pre-determined percentage or a dollar amount directly into your savings account.
Don’t Spend Bonus Money
When you’re budgeting and saving big sums of money, it’s tempting to think of gifts, bonuses, tax refunds, and commisions checks as “free money”. Don’t spend these on the non-essential expenses that you’ve cut from your budget but miss dearly.
Instead, bank these in your savings account. These unexpected sums of money can shorten your timeframe by a great deal over a few years.
Save More Money Than You Knew You Had
Now that you know how to save for a house, check out our blog for more tips on tricks on how to save your money.