Ways to save to buy a home
Buying a home is the biggest investment most of us will ever make. For first time buyers, however, the amount required for the down payment – as well the associated closing costs and other fees – can seem like an unachievable milestone.
With some banks and lenders allowing buyers to purchase a home with as little as 5% down, now is the perfect time to start thinking about buying a home. Whether you are a few months or a few years from buying, the following tips can help you start saving for your dream home.
1. Create a monthly budget. The best and most effective way to quickly build savings is to spend less than you earn. Begin by tracking your spending for a month, including major items like rent and utilities, as well as the little things such as cups of coffee and movie tickets. This can show you exactly how much you’re spending, where the majority of your money is going, and how to cut back spending to increase savings. Likewise, creating an honest and realistic budget can keep the new savings plan from feeling too restrictive or leaving no room for fun.
2. Put home savings in a separate account. Watching the zeroes in your bank account rise can make it tempting to start spending. Keep your down payment savings separate and safe from monthly expenditures by creating a separate savings account. Putting the funds in a dedicated savings account can help keep the money out of sight and out of mind until you are ready to purchase your home.
3. Monitor your credit. Nothing can derail a home-buying plan faster than bad credit. Ensure your credit history is good by monitoring your credit, before you head to a lender for pre-approval. This gives you time to improve your score, pay off outstanding debts, or challenge any mistakes that may be present on your credit report.
4. Bank 100% of windfalls. Whether it’s a large tax return, a major commission check, or an end-of-year bonus, unexpected financial windfalls can seem like an excuse to go out and splurge. When saving for a down payment, however, windfalls should be put directly into savings. A good budget ensures this money isn’t needed for expenses, and it can get you one step closer towards your financial goals.
5. Save less in other areas. If employer-sponsored 401(K) matching means you are contributing large chunks to your retirement account, consider redirecting that money for a few months. While four to six months of saving less for retirement are unlikely to seriously affect your financial stability, the additional savings in just a few months can get you into your dream home faster.