The purchase of your first home is arguably one of the most important mile markers of your adult life—but before you start shopping around, visiting open houses, and daydreaming about nearby neighborhoods, you need to set some money aside.
Unfortunately, the idea of saving for that first big purchase can seem pretty daunting to first-time home buyers. For those who are wanting to buy their first house but are unsure how to start saving, Lindsay Guion, the Founder and CEO of GUION PARTNERS INC., has created this beginners’ guide.
Determine your price range
Before reworking your budget or devising a savings plan, you’ll need to determine what amount you can comfortably afford to spend on your new home. While it may be helpful to sit down with a mortgage lender, it’s best to keep in mind that what the bank says you can afford is often drastically higher than what your budget can truly accommodate.
In deciding on a price range, you’ll want to consider your monthly income in relation to home costs such as the mortgage, property taxes, and home insurance. Once you’ve determined your home budget, you’ll need to do a little research and outline how much you’ll need to save for your initial down payment. Lindsay Guion recommends at least 20%, although putting more down, if possible, can lower your mortgage rates and save you money in the long run.
Pay down current debts
If you have current debts (like student loans, credit card debt, or car loans) then you may struggle to save for a home, even if you’re working with a healthy monthly income. While it may seem more intuitive to save rather than spend money to pay down debt, the best bet in the long run is to double-down and knock out your debt before shifting your attention to your savings plan. Once you’ve eliminated your debt, you’ll find it’s easier (and quicker) to save for your first home.
Set up a savings plan
For a select few individuals, saving is second nature—but for most of us, it takes conscious effort and self-discipline. That’s where a savings plan comes in. Like a 401(k), the goal is to have a fixed percentage of every dollar you earn go towards your down payment for your future home.
For those who may otherwise be tempted to skimp on their monthly saving, Lindsay Guion recommends automated saving programs. These take the hassle and work out of setting money aside, which eliminates the temptation to spend frivolously or skip out on installments.
Cut your expenses
If you’re trying to find ways to put aside a little extra in order to expedite the saving process, sit down and review your current spending habits, looking for ways to reduce overall expenses. Lindsay Guion suggests taking note, especially, of how much you spend on optional expenses such as movie tickets, restaurant meals, and cafe-style coffee drinks.
Opting to save a dollar or two on your morning cup of joe may not seem like a big help when it comes to affording for something as costly as a new home, but these small steps can quickly add up, giving your savings fund a little extra cushion.
Do your research, says Lindsay Guion
It goes without saying that the only way to save for a house is to actively save money. Another thing to keep in mind; however, is the undertaking of research on incentives and programs for first-time home buyers, says Lindsay Guion. There are many different programs in the U.S. that are designed exclusively to help first-time home buyers purchase their home.
For additional research, try consulting a financial planner to help you develop an overall plan to save and grow your money.