Updated July 2, 2019 . AmFam Team
Owning a home is a dream shared by many. But saving enough money for a down payment might seem like a far-off plan. After all, you’ve got student loans to pay off, you’re working on establishing your career and you’re not sure where you’ll be in 5 years. Renting an apartment might seem like a better option right now.
Believe it or not, this is the perfect time to start saving for your first home! It pays to have a plan. So follow these steps, and you’ll be on your way to achieving your dream of homeownership in no time.
Buying a home will pull your finances in many directions. Yes, you’ll need to have cash saved for a down payment on your new home. But what about the funds that will be due at closing? Have you accounted for upgrades that may be required to get your new home into a habitable state? What if you need a new roof — where will those funds come from? Do you have a budget for movers built out yet?
Even though it can be a bit daunting, with the right amount of preparation and careful savings, you can close on the home you’ve always wanted and afford to do so too. Our hidden closing costs calculator is a great way to review common expenses that occur at closing.
Finding the money to save when you’re already living on a tight budget can seem like a big ask. But with our tips on shaving away at monthly expenses and doing away with luxuries, affording a new home can be possible.
This may seem like an extreme step to take right away, but it’s important to be informed before you start saving for a home. An experienced professional will estimate what kind of mortgage you’ll likely qualify for and work with you to figure out your timeline. Plus they’ll help you understand all the complexities and costs that come with buying a home — think down payments, home inspections, interest rates and more.
Based on your discussion with the mortgage lender, determine how much you need to have saved for a down payment and how long it’ll take you to comfortably do that. Set realistic yearly savings goals and make it a priority to stick to them so you can stay on track.
It’s time to put pen to paper and map out your monthly budget. Now that you’ve got lofty home savings goals, you’ll need to shift your spending habits and stay consistent about meeting those yearly targets. This means cutting back on expenses and holding yourself to new rules and stricter dollar limits. It’ll be a change, but you’ve got this!
Life happens, so it’s good to be prepared for the unexpected. Have an emergency fund set aside — and contribute to it regularly — to pay for things like car repairs, uncovered medical expenses and temporary unemployment. This way you won’t have to dip into your home savings when life throws you a curve-ball.
A home is a big purchase, so you’ll want to be as consistent and secure as possible when it comes to your savings tools. Avoid playing the stock market or using other high-risk investment vehicles when saving for a home and opt for a tried-and-true savings account. Old-fashioned is the way to go!
Make saving for a house easy by choosing to have a percentage of each paycheck automatically deposited into your savings account. This way you’ll be blind to the transaction and won’t be tempted to spend the money.
Tightening your purse strings and cutting out the extras is worth the payback later. It may be hard to get used to, but you can ease into it. Start by making your own lunch for work every day for a week, putting your Hulu subscription on hold for a month or skipping the clothes shopping for a season. You’d be surprised at how much these little changes can save you — and you might find these temporary sacrifices become smart, long-term habits!
Tax returns, holiday bonuses, cash from your side hustle — this is all money that falls outside of your normal income. So why spend it? Stick to your monthly budget no matter what, stash the extra in your savings and see how much faster you reach your home savings goal.
Having good credit will make it easier for you to borrow money, and it’ll help you get a better mortgage rate, saving you tons of money over the life of your home loan. So it’s smart to keep on top of your credit rating. And don’t be afraid to actually use it! In fact, it’s a good idea to consistently use about 35% of your available credit limit on your card as long as you’re always paying your bills on time.
If you’re living in a space where another room’s available, consider finding a reliable roommate. You’ll be able to shave off a fair percentage of monthly utility expenses and cut down on your rent as well. With a roommate picking up some of the expenses, you’ll be able to get that down payment cash saved more quickly.
Picking up a little additional work can help to inject new funds into your earning routine, and that’s money you can point directly toward savings. New jobs also open you up to new work opportunities and the chance to improve a skillset. You stand to be more marketable and better skilled as a result. Here are a few simple side jobs that can generate a little extra cash:
Buying a home is a big life step! But it doesn’t have to be so daunting. Take these smaller steps to start saving now and make the transition into homeownership as easy on your finances as possible. It’s smart to be proactive. While you’re saving up and putting the cash together for a home purchase, remember to check in with your American Family Insurance agent. (Opens in a new tab) They’re a great resource for pointing you towards coverage that can help protect what matters most to you.
This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.