Six Tips to Help You Save More to Purchase Your First Home

Purchase Your First Home

Hello everyone. Today I welcome Sunny from Home.com to The Green Swan with six tips to help you save more to purchase your first home. As regular readers know, I am tired of being a homeowner, but I can’t say I regret the decision necessarily. Financially speaking, owning a home for the last five years has been great. And I’m not alone, as home ownership is the primary way most folks in America grow their net worth. If you’re ready to purchase your first home, I think you’ll enjoy this post from Sunny.

So without further ado, let’s hear from Sunny…

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Buying a home is one of the major investments you will ever make, but it is not without its share of challenges. Finding the right property takes months, but that is just one of the things that make the process complicated. Saving for the home itself can be quite a huge hurdle.

Even though it is now easier to qualify for conforming loans because down payment requirements have been reduced, there is still the matter of saving for the down payments, closing costs, legal fees, land registry fees and a reserve fund for the inevitable repairs and other expenses that come with homeownership. If you are a first-time home-buyer, here are six tips to help you save more to be able to buy your first home.

  1. Figure out how much you need to save

Before you begin saving for your first home, you should know how much you need to save. Sit down with a mortgage lender and determine how much mortgage you qualify for.

Your housing expense should not exceed 28% of your stable monthly income. Therefore, if you have a monthly income of $5,000, you should allocate $1,400 to a house payment.

The $1,400 includes the mortgage principle, the interest, private mortgage insurance (PMI), real estate taxes and homeowners association fees if any.

This translates to a mortgage loan of about $177,500. Today, you should be able to raise 20 percent down payment on a house. You can put down less, but it will lead to higher interest rates.

Using the above example, you will save for a down payment of about $45,000.

  1. Set a budget

After determining how much you will need for a down payment, create a budget to show your monthly gross income then subtract taxes and other costs. Next subtract other monthly expenses such as rent, car payments, student loans and credit card bills.

Determine how you spend the money that is left each month then start keeping receipts for things such as parking, entertainment, restaurants, utilities, gasoline and all other things you spend money on to determine how you spend your money. After doing this, scrutinize each expense and check which expenses can be cut.

To save more, you need to change your spending habits. You should spend much less than you earn.

Also, set a time to review the budget, say every last Monday of the month. Go through your spending asking yourself if every dime you spent was justified and set new goals every month to eliminate the unnecessary expenses. Being a conscious spender can make all the difference.

  1. Open a savings account

Open a separate savings account exclusively for the down payment. By keeping this money separate, you are less likely to use it when tight on cash.

It is best to open the account at the same bank or credit union where you do your checking. The reason for this is the convenience as most credit unions, and banks allow customers to transfer funds from one account to another instantaneously and electronically.

This means that you do not need to visit the bank to make the deposits, which saves time and prevents excuses of making the savings for your home.

  1. Set up an automated saving plan

After creating a dedicated savings account, allocate a certain percentage of your regular pay to go directly to the savings account. This way, the money will be sent monthly, and you will not even notice it was there. That removes the temptation and possibility of spending the money on other purposes.

  1. Use windfalls to your advantage

You can make the process of saving money for your first house easier or even shorter by banking the periodic windfalls. These include tax refunds, large commission checks, gifts, bonus or even sale of personal assets.

When you deposit these funds in the savings account, you fast-forward the process of saving money for your first home.

  1. Build flexibility into your savings plan

While saving money to buy your first home, there are still other demands on your finances such as medical expenses, car repair, and replacement of a car or even temporary unemployment. Be ready for that rainy day. None of these will stop just because you are saving for your first home. Therefore, you should be ready for them when they happen.

Have a well-stocked emergency fund before you even begin saving for a home to cater for the unpredictable expenses. This way, you will not be tempted to use your savings for your home.

– Sunny

 

Thanks for the great tips, Sunny! Be sure to check back with The Green Swan on Monday for a big announcement on how I plan to take control over my healthcare…a continuation of recent posts related healthcare including Healthcare Does Not Cause Job Lock and Understanding Retiree Benefits for Early Retirees.

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10 Comments

  1. My wife and I are saving for a house right now. We’ve opened a separate account with Vanguard and send all the money to this account. The goal for us is to have a house payment no more than 25% of either my or my wife’s take home pay.

    1. Nice! So 25% of just one of either your salaries? Very conservative and good game plan. When we bought a house we were conservative as well, focusing on what a mortgage payment would do to our total budget and keeping that tight so we wouldn’t have to rely on both incomes.

      1. Exactly, we live in the San Francisco Bay Area right now (and no, we are not going to buy a house here) and we see a to of our friends buying houses they can’t afford. Can you imagine $1,5M house?
        And they both have to work just for this house. We don’t want to be in this kind of slavery

        1. Can’t imagine paying that much for a house!

          We loved it when we lived out in San Fran…but we were lucky as our housing was paid for by my Company. Those rents were outrageous!

  2. That is more or less how we saved for our house.

    One thing e did is making no down payment (the good years before 2008). It allowed us to remodel a few things the following years and to get married.
    We bought a house we need, not the one we could afford. Big difference

      1. And still, the garden is a little bigger than we really need. That is because at my parents place, we had a real big garden, the (dis)advantage of living in a small town… I plan to use it now to teach the kids a little on gardening. big plans for a wild flower area

  3. opening savings account is not a big task but maintaining flexibility is some times a difficult job, not impossible though. You have to ready for the rainy days as well. Emergency funds always work. I always try to set aside a part of my earning for emergency.

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