How to Save for Your First Home
Posted By Macey Farnsworth on October 29th, 2019
While it’s true that buying a home is probably the largest purchase you’ll ever make, don’t let that scare you out of doing it. As long as you have a solid plan for how to save for your first house, it’s not as hard as you might think.
Set Some Goals
First, you need to estimate how much house you can afford. A good rule of thumb is about 2.5 times your annual salary, to be on the safe side.
Once you have a rough idea of how much you can afford to pay for a house, it’s time to start saving for a down payment. Unless you have a nest egg already set aside, it can take up to two to three years.
Most first-time homebuyers should save anywhere from three to 10 percent, but the more you save, the better. With the Great Recession of 2008, many lenders ask for 20 percent down. Besides, the more you can put down, the less your monthly payment will be.
If you want to have more than a rough estimate of how much you can afford to spend on a home, meet with a mortgage lender or broker. Be prepared to give them as much information about your finances as possible.
They’ll want to know how much debt you already have and will probably run a credit score or report. With that information, they’ll pre-approve you for a certain loan amount that you can use to calculate your down payment.
Open a Savings Account
If you don’t already have a savings account, you should open one. If you’d like to have a separate one from another savings account you already have for the specific purpose of a down payment, then, by all means, do so. You may even want to put your regular savings account on hold and divert all money to your down payment to speed up the process.
Keep in mind that all down payment money must be sourced, so if you have any large deposits to make, do it at least 60 days in advance of loan closing. Otherwise, you’ll have to provide documentation showing where this money came from.
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Create a Spending Plan
It’s hard to save money when you don’t know where your money goes. Try a free online service like Mint and link it to your bank and credit card accounts. Then, start categorizing your expenses to see where it all goes. Try to trim any excessive spending and put the savings toward your down payment.
Another great app to try is the iOS app, known as Albert. It’s best for people who want to put their budget on autopilot. It tracks your expenses and makes suggestions for cutting costs.
Or, if you’re more of a spreadsheet fanatic, try tracking your expenses in one of these handy spreadsheet templates.
If you have a difficult time saving money, try paying yourself first. Ask your employer to take a percentage of your paycheck and direct deposit it into your savings account.
There are also savings accounts that have a “round-up” feature. For every purchase you make, it will round up to the nearest dollar. Some smartphone and tablet apps such as Digit, Qapital and Tip Yourself make it really easy to do this.
If you prefer spreadsheets, try one of these free budget spreadsheet templates. There are plenty to choose from, each focusing on your financial needs.
The real trick will be pretending like you don’t have that money. Let it sit and accrue interest, and keep putting money in. Before you know it, you’ll have enough money for your down payment.
Earn Extra Income
If you can work overtime or get extra hours, then do that. If there are part-time jobs that appeal to you, put in an application or two. It’s only temporary, right?
If you can’t get overtime, try finding a side hustle you can do to bring in extra income. What is a side hustle? It’s basically a new term for moonlighting.
Thanks to the gig economy, it’s much easier to do. You can try driving for Lyft or Uber, or deliver food for DoorDash or GrubHub on your own time, according to your schedule. Stop whenever you need to, and pick it up again whenever you need more money.
You can find many different types of side hustles besides Uber on an app called Steady, which is available for iOS and Android. They also offer leads on part-time and seasonal jobs in your area as well as ways to earn an extra income
If you’ve been meaning to clean out your closets or basement, there’s no time like the present to have a yard sale. Or, you can try selling your gently used clothing on sites like Craigslist or Facebook Marketplace.
Take any extra income you earn and put it into that savings account you just opened, and watch it pile up.
Purchasing a home doesn’t need to be an overwhelming experience. If you start saving early and get creative with your finances, you should be able to save for your first house easily. We hope that these tips on how to save for your first house have given you the roadmap you need to become a first-time homeowner.