If you're interested in buying your first home, congratulations! Making the decision to settle down and buy a house is an important one, and it's the most important part of the home buying process. The next step is to start saving up money specifically for your home, and this article will help you. Here are some tips to save money for your first home.
1. Set a Budget
Before you can start any real planning you'll have to know exactly how much you plan to spend on your home. Generally speaking, you'll have to save at least 20% of your home's cost to use as a down payment, so keep that in mind when thinking about a budget. So if you want to buy a $100,000 home, you'll have to have at least $20,000 saved, not including other costs that come with home buying.
If you aren't sure exactly what a realistic budget is in your area, you can use online home buying resources to find out how much house you can get for a specific price range. For example, if you know you want a house with three bedrooms, you can go on realtor.com or zillow.com to look up what the price range is for three-bedroom homes.
If you know you want to custom build your home, make sure to look into local construction companies and see what the price range is for their projects. Construction companies will often have a simplified version of the construction blueprints, which are two-dimensional drawings of the project with all the building details included, that you will be able to view. Make sure to budget for any fees they may have as well as the price to buy a plot of land if the construction company or developer doesn't offer it.
2. Make a Schedule
Once you've determined how much you want to spend on your home, you can start to plan when you'll be able to actually buy or build your home. To start your schedule, you should create a monthly budget that you want to stick to. To create this budget, take these factors into account:
- Gross Monthly Income. How much money actually ends up in your bank account every month? Make sure to account for the taxes you have taken out of your paychecks and any other deductions, like money routed towards donations or your 401k.
- Bills. This means everything including your rent, electricity, gas, car payments, water, internet, or other recurring monthly expenses that you need to continue your life in a normal way. Though something like a subscription box is technically a recurring monthly expense, it wouldn't really fall into this category.
- Food. How much do you usually spend on food every month? If you aren't sure, look back on your last month's worth of grocery store purchases on your credit or debit card, or if you primarily use cash, save your receipts for the next month and add it up at the end.
- Gas. How much do you usually spend every month on gas? Obviously, this number will fluctuate as gas prices fluctuate, but you should have a good idea of how much you're spending on gas right now.
- Going Out/Fun Money. If you know that you can't fully cut out eating out or shopping, set a specific budget that you can stick to until you're in your new house. By setting a specific budget, you can control your overall spending.
Once you know how much you spend versus how much you make each month, you'll be left with the amount of money that you can potentially save. Obviously, the odds of sticking exactly to your budget is pretty low, but you should now have a good idea of approximately what you'll spend every month. Based on that number, how much can you save for your home every month? Take that number and divide it by how much you need to save for your home, and you have a rough schedule of when you'll have enough saved to buy a house.
As an example, let's say you need to save $20,000 for your down payment, you can save around $800 a month, and you already have $2,000 in savings. That means it will take you 22.5 months, or just under two years, to save up for your home.
3. Work on Your Debt
If you have any kind of debt, be it student, credit card, or another type, you should make sure you have a handle on it before buying a home. Approximately 26% of home buyers state debt as the first reason they struggle to afford their first home. By paying down your debt, you're making it easier in the future to afford your home. You'll be able to save more every month, and because of that, you'll be able to cut down on your timeline to buy a home.
4. Cut Down on Unnecessary Spending
If there are any things that you spend money on that you know you really don't need, you should try to go without until you're in your new home. For example, if you love shopping for clothing, and you spend more money than you probably should every month on new clothing, you should try to at least cut down on buying new clothes. On the other hand, something that may be more expensive but are worth it are investments like security cameras, which are the most effective way to deter potential burglars from robbing you. Make sure to think through your purchases, even your small ones -- a handful of small purchases add up to be the same as a large one with time.
If you're starting to save for your first home, you are already on the right track by actively thinking about how to save. Once you figure out how much you want to spend on your home and set a monthly budget, you'll be well on your way to homeownership.
If you're a homeowner, what do you wish you'd known about saving up for your home? What did you do that was helpful? Let us know in the comments!