Setting a goal to save for your first home can seem daunting at first. When comparing real estate prices and calculating down payments, the numbers may be overwhelming. Fortunately, there are strategies you can apply to slowly meet your savings goals without compromising too much on your quality of life. Here are four tips on how to save for your first home.
1. Set a budget and timeline
Before researching homes, decide how much you can afford to spend and in what timeframe you want to have saved up this amount. To figure out the number, calculate your total home costs, including mortgage, property taxes, and home insurance, and then plan to save 20% for the down payment. If that seems unattainable (or will take too long to achieve), save up at least 10%, because if your credit score is around 700 or above, you will be able to qualify for a good mortgage loan requiring only a 10% down payment.
2. Pay off your debts
Less debt can help you get a better mortgage rate in addition to taking financial pressure off you. So, make it a habit to pay off some of your credit cards, student and car loans, and other debts before saving for a home. If you don’t have debts to pay off, plan to spend no more than one-third of your total income on housing costs.
3. Reduce expenses
Being mindful of your expenses can significantly help you reach your savings goals. Your biggest expense is most likely your rent. If you can temporarily move back in with your parents or into a cheaper rental apartment, you’ll be able to significantly reduce your expenses and start saving for your own home. A few other ways you can reduce costs include getting a cheaper mobile plan, better broadband and utility deals, switching to a discount supermarket, buying no-name brands, carpooling, walking, or cycling to work (if possible) to reduce your gas expense, and selling things you no longer need.
4. Earn more and boost your savings
If your job allows it, work overtime or take extra shifts, and consider taking a second job or freelancing on weekends from home if time permits. There are many online platforms (like Upwork or Fiverr) that allow you to find freelancing work online and turn your skills into extra income. Then, start setting aside a monthly amount that goes towards your down payment. Refer to step #1, your budget and timeline, to know how much money to save each month.
Saving up for your first home is both scary and exciting. No matter your financial standing, if you plan properly, pay off your debt, actively reduce your expenses, increase your income, and set aside some money towards your home goals every month, you’ll be able to become a homeowner in just a few years.