Buying a home for the first time is exciting and full of promise. You’re likely eager to be rid of rent and finally have a place you can truly call your own. However, a home is a big investment, so it’s important to focus on what you can realistically afford and budget accordingly.
Determine your down payment
You’ll need to save at least ten to twenty percent of the home’s total cost, for a down payment. The more you can pay upfront, the less you’ll have to pay interest on. After you determine the amount you need to save, set a deadline. This will define your goal and motivate you to find creative ways to save.
Create a budget
In order to save for anything, you need to make a budget and stick to it. There are a variety of websites and software that can assist you with creating an organized budget, to easily keep track of where your money is going. When you have designated an amount to be deducted each paycheck, have it automatically deposited into a separate savings account, so that you are not tempted to use it.
Earning interest on your savings is an added bonus and can be done with a high-yield savings account. Talk to your bank to find the best deals that will add to your savings. Some banks even offer special accounts that provide rebates or higher returns on mortgage closing costs. The earlier you start saving the more interest you will earn.
Save every day
Start being stingy. This doesn’t mean that you never do anything fun or buy anything nice. Those sorts of purchases can be worked into a budget. However, saving for a home means making temporary sacrifices. Set small savings goals to make saving fun and give yourself a sense of accomplishment. Every time you go to buy something, stop and think if it’s what you really need or just something you really want. Cut major expenses, such as credit card debt, to improve your debt-to-income ratio, which will help you get better mortgage rates.
There are many incentives for first time home buyers, so doing your homework will pay off. If you’re building your own home, consider environmentally-friendly additions, such as ENERGY STAR appliances, that often come with rebates and will pay for themselves in energy savings. Traditional IRAs will allow you to withdraw up to ten thousand dollars, without the penalty, for a first-time home purchase (Weliver, 2008, http://www.moneyunder30.com/down-payment-saving-five-steps-to-save-for-your-first-home) .
Envision your future
Delaying gratification is hard, and there will be times when you really want to use your home savings for a vacation or major purchase. Don’t! Take some time and visualize the home of your dreams. Imagine yourself decorating, landscaping, and spending time with family and friends, in your new home. Temporary sacrifices now mean huge savings later, when your home is paid for.
Buying a home and staying out of debt is exhilarating, rewarding, and fulfilling. Being responsible and budgeting wisely will make a huge positive difference in your life, save you a lot of stress, and provide opportunities that you would not otherwise have.