• Tyler

How You Can Start Saving For Your First Home

Updated: Jan 26

A house that a family saved for.

Homeowner, it's a title that most people want to claim one day, but maybe not yet. It can be hard to start saving for a home, especially if you're a first-time homebuyer. But It's never too late to start saving for a new home.

Between paying off school loans, establishing your career path as well as getting your foot in the real world, maybe you aren’t ready to take on the responsibilities of a house. If you're a first time home buyer, this blog is for you!

While you might be months or years from your first home, there’s work you can do now to make buying a new home easier. Purchasing a home is one of the biggest decisions that you make in life, so you should make sure you're prepared. Without taking the appropriate steps, a home can rapidly turn from a blessing to a curse. To help aid you along the path to homeownership, we have put together several different steps you can take now, so that when you are ready to buy your first house, you may be knowledgeable and prepared. Let's dive right in and find out how you can start saving for a home. Here are our favorite first home buyer tips.

How To Save For A House

#1 Start A Savings Account

One thing that you can do now to make your path to homeownership easier is to make a savings account. Although the task can sound daunting, particularly when funds are tight, it doesn't have to be. Actually, as per the National Association of Realtors 2016 Profile of Home Buyers and Sellers, 61% of recent home buyers used their savings for their down payment.

National Association of Realtors study of home owners

And did you see the second bullet point made? 40% of homebuyers saved for their downpayment within 6 months or less. So, it's practically not a bad idea to keep padding that savings account. It is essential to remember that a stockpile of saved money does not occur overnight. Of course, saving money takes time, so the earlier the better. Putting money away in a savings account takes effort. You need to be willing to do without other things sometimes.

Decide how much you want to contribute financially to your savings account. If you're thinking about purchasing a home someday, don't wait to save, begin now! Like right now. Pause this and find out where you can start a savings account. Ariel and I have already started the savings process, even if buying a home is later down the road. You don't necessarily have to have a goal date of when to buy a house to start saving. So start now!

#2 Set a Savings Goal

Calculator and savings goal

If you want to buy a house, you can't know what your financial condition will look like when it's time to close, or what your cost range needs to be. Research the place you like to live and homes you'd like to purchase to determine a cost range. Will you want to move farther away or downsize to stay within your budget? Determine how much you might want your down payment to be. Check out this blog post to find out how much minimum down payments are.

Consider what compromises you're willing to make. Begin looking into home buying programs you can qualify for as well. These programs and grants have income restrictions, as well as credit score requirements or are location-based, so it's smart to get an idea of those you can qualify for and others you can work toward. Your down payment will probably be a big upfront cost, so you need to have an idea of how much you'll want to put down, whether it is a standard 20 percent or taking on private mortgage insurance and paying less upfront. The usual minimum for down payments can vary, but are anywhere from 3-5%. However, paying more helps to save money in the long term.

You could work with estimates, but having a number in mind will help you develop a plan. Keep in mind what you may afford on an ongoing basis. Utilize a mortgage calculator to determine how much you can afford based on the monthly payments you're capable of making. Planning how much you can afford upfront will save you the stress and possible consequences of taking on more than you may be able to handle when it's time to buy the house.

People fall in love with homes, as Ariel and I do all the time. But if you don't start a savings account, this will limit the kind of home you can afford in the future. You might be qualified to get the home you love, but if you don't put a good enough downpayment, you could be spending more on that home with private mortgage insurance and possible other fees. Start a savings account now!

#3 Know the Importance of Your Credit Score

Woman holding credit card

It's never good when you hear that you have bad credit. Although perplexing, your credit score is a number that has the greatest effect on your future buying power. Act smart and pay attention to this number. At the bare minimum, you need to know what your credit situation is. Mortgage lenders, credit card companies, and employers are looking at credit profiles. You need to be too.

One in five Americans have errors or red flags on their credit report, and those errors will cost you a high-interest rate on credit cards, a home mortgage, or your car insurance. If you need to purchase a home, get fiscally fit. Time will be your friend if you start earlier. Take control of credit by using credit, keeping usage about 35% of available credit, and paying your bills on time. Having a better credit score will mean you don't have to save as much to afford the home you want.

#4 Get Free Cash From the Government

The government can help you save some Government bonuses up to the age of 50, which may be used either for purchasing your first house or retirement. You have to be under 40 for applying. Do your research on what you might be able to qualify for. Many times, if you are a first time homebuyer, you can get a discounted interest rate or some other type of benefit.

#5 Down Payments

Over the years you might have heard of people getting a home with as small as a 3.5% down payment. Maybe this caused you to sigh a breath of relief. A down payment that size can sound pretty doable to you, but frequently 20% is the old standby. It's told to Millennials and Generation Z people that 20% down needs to be the goal, and a 15-year mortgage is the ideal loan term.

It's done because the people who listen end up avoiding a condition called over housing themselves. People who put too much into home buying become enslaved to their mortgage payment. Experts agree with a 20% down payment. It's a great idea for people to shoot for 20% down, which is a growing trend as lending guidelines have tightened. While you can begin as low as 3.5% down with an FHA loan, you do have to buy mortgage insurance and will end up paying higher closing prices and more in insurance. 20% down will typically waive any insurance, and will save you money.

#6 Get Your Accounts in Order

One of the first thing you need to do to start saving for a house is to get your accounts in order. If you’re capable of it, this means starting with your paycheck.

Woman getting her accounts in order.

Set up an automatic withdrawal to an investment account for the day after you receive your paycheck. This way you won't be tempted to spend the money or make the decision to not transfer. You also need to start repaying any high-interest, unsecured debts like credit cards. The money you save on interest from credit cards can go towards saving for a new home.

#7 Save Less for Retirement

If possible, don't withdraw money from a retirement account and borrow against it. You’ll either repay the loan with interest or be subject to tax withholding and possible penalties to withdraw money.

Instead, scale back your contributions a bit until you get to your savings goal to buy the house. For instance, if you are contributing more than your company will match in a 401(k) plan, maybe you can trim it back and place more cash into your home fund. This would only be a temporary switch. We suggest going back to contributing as much as possible for retirement.

#8 Cut the Luxuries

If you're saving for a home, you need to put a hold on making any large buying, fancy vacations, or expensive clothes. But watch the small stuff, too. A fancy cocktail in a bar can cost $16 these days. Even if you keep it down to 2 drinks a week, that is $1,664 that you could be putting into your home fund over a year. What about coffee? I know people that get coffee every single day from Starbucks. Think about how much that might cost someone a year? Hint: it's a lot!

Budget your cash strictly, and put the savings in the savings account, as it will help you to save a lot and will help you to buy that first home for you.

#9 Trim Routine Expenses

If you give it some thought, you could conclude that a few monthly ongoing costs may have to be removed. Cut the cord on cable television. Get a cheaper cell phone plan. Quit your gym, and bicycle to work, or workout from home. You'll find that you don't even miss these things when you put the equivalent amount of cash into your house account. These small things will help you to buy your first home.

#10 Set Money Aside at the Beginning of the Month

Several people wait until the month’s end to see how much money they have leftover before putting any money into a savings account. This is the absolute worst way of going about it because most of the time, you will discover that you don't have much left over. If you want to get serious about saving, calculate how much money you need to put in savings first. This helps you to not spend any extra money that could have been putting into savings originally.

It can take getting used to, but once you begin putting the money away, you begin to adapt to it. If you're tempted to dip into a savings account, keep your savings account in a different bank from your checking account, making it harder to transfer the money back and forth. You can use an online bank for a savings account to diffuse some of that temptation, and several of them have good interest rates than conventional banks.

#11 Pay Your Future Mortgage

Try figuring out how much you expect to pay on a mortgage monthly, and deposit that amount into your savings account. This means that additional to your rent, you put the assumed future mortgage payment into your savings account and treat it as you will any other monthly bill. This habit will help you pay down a future mortgage. It's like paying off a car. When you pay it off you should take the money set aside each month to make the payment and put it in your savings. It's the same logic here, except it's before the mortgage.

#12 Get rid of one car

If you have a spouse and you each have 2 cars, consider getting rid of one. This isn't always logical, but if one works from home or is home more often, this could work. This would save you a lot of money. You might also consider moving close to where you're working or where your spouse is working. Your partner could try walking, take public transit, carpooling, or even cycling to work.

If you can make this work, you could potentially save one car payment each month, plus gas, insurance, and maintenance. It will add up to $9,000 in one year for the average person. If you spend less than average, you are looking at huge savings. Try to bank this money if it's possible. If you don't want to go cold turkey on this idea, try parking your car for a couple of months first to see if it works for you. Then sell the car when you see that it works.

You may not even need to downsize. Try also just getting a more affordable car. I know, I know. We all want that mustang or convertible, but is it affordable? If it causes you to struggle financially, then it's time to rethink the car.

#13 Look for cheap ways to do things

This is how smarter people save money. They make a lifestyle of finding cheap ways to do things without diminishing their fun. Here are a few of the best tips:

  • Do you purchase a lot of new books? Try the library. They’ve got zillions that you can borrow for free. Or simply buy used books.

  • Do you go out too often for movies? Try renting and sticking with cable. Few people are now even dropping their cable in favor of watching shows online. This actually will save a lot if you downgrade to one or two streaming services.

  • Do you eat out a lot? Try eating out less or look for cheap areas to eat that you still like. You can use two for one coupons or purchase an Entertainment Book and eat at the places that have coupons. I suggest simply limiting how many times you eat out. I stopped eating out completely for 1-month and I saved $1,000 extra for the month.

  • Do you spend money on hobbies? Try to spend less or finding other hobbies that cost less for a while.

  • Do you purchase a lot of new clothes? Try sticking with your present wardrobe for a while, or selectively buy clothing items that coordinate with what you have. When you purchase clothes, look for sales. Try looking for the best deals.

  • Do you take expensive vacations? Try something less expensive or closer to home.

  • Do you purchase new music? Try listening to the radio more, borrow music from the library, or purchase a card to monitor how much you download.

  • If you have a busy family, you can save money if you eat at home more frequently, and look for fun things to do around your community that are free or don't cost as much. If you go to the movies a lot, try renting. If you rent a lot, you can save even more by checking out the library. Various libraries have videos you can borrow for free. This option is best for children.

Final Thoughts

Saving for a new adventure is hard but also exciting! We truly understand what it's like to see others get whatever they want, and yet we struggle financially. That's why we want to help you save and manage your money better. By managing your income better and saving more, and learning how to make more, you could have a much more freer life that's filled with more expensive things that you've always wanted. But it takes work, and discipline. And the sooner you start the better.

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