Buying a home requires savings. Even if you are already saving money, shifting those funds to your home purchasing goal can make it easier for you to purchase a house sooner.
Cutting expenses isn’t always easy, but if you can cut out those unnecessary splurges and extra purchases it can save you hundreds of dollars a month.
- Investing in Your Future
Aside from saving for a down payment and closing costs, new homeowners also need to set aside money for ongoing maintenance, repairs and replacements. Having a cash cushion helps avoid the temptation to charge these expenses to a credit card, which can lead to high interest rates and heavy debt payments down the road.
While everyone’s situation is unique, it’s generally recommended that new homebuyers aim to save at least 10% of their income. Once this amount is reached, they can begin investing their savings in the market to grow their wealth over time.
To get started with saving and investing, new homeowners can use an expense tracking app to track their spending and income. They can also talk to a financial advisor about how they can maximize their savings and growth opportunities. An advisor can provide a complimentary financial assessment and help new homeowners create a savings plan that fits their specific needs.
- Getting a Tax Break
For most families, the biggest expense is housing. By saving a substantial down payment and reducing other costs, a family can move toward homeownership faster than they might think.
Experts recommend separating savings from the money used to live, and setting up a special account to streamline those efforts. Using an online banking account that offers high interest rates can accelerate those efforts.
Other home-buying tips include socking away windfalls, such as bonuses from work or extra cash gifts. Stashing tax refunds and other income that doesn’t typically come out of paychecks can help reach down-payment goals much faster. Finally, look into assistance programs that can make the cost of homeownership more manageable. These can help reduce the amount of money needed to buy a home, and can make it more affordable for families with fluctuating incomes. This can also be beneficial for families that are still working to establish credit or those juggling other debts, such as student loans and car payments.
- Buying a Home is a Long-Term Investment
It may take a year or more to save enough for a down payment. During that time, you can use your emergency fund, cut expenses and put extra money like bonuses, raises or cash gifts into a savings account for your home.
It’s also possible to reduce your housing costs by downsizing, moving in with roommates or buying a cheaper house, suggests Nelson. Other cost-saving tips include scaling back subscription services and shopping around for discounts on groceries.
In addition to building equity through mortgage payments, homeowners can make a profit when they sell their homes. And the equity they have built up can be used as a source of cash if needed, such as to consolidate debt or fund a major purchase. For all of these reasons, many people consider homeownership a good investment. But before taking the plunge, you need to know what the pros and cons are. And to do that, you need to understand how much you’ll need to save.
- Buying a Home is a Long-Term Investment
Developing a financial plan for buying your home a year or more before you would like to move in can pay off. Not only does it help you save for the down payment on your new home, but it also makes you a better credit risk by increasing your investment in the home and reducing the amount of money you need to borrow, which can result in lower interest rates. For homeowners, home protection plans serve many purposes and benefits to help with a secure budget.
Creating a budget to cover the additional costs of owning a home is another important step. This includes a budget for the mortgage payment, increased utility bills, homeowner’s association or condo fees and maintenance costs, such as fixing leaky faucets or ant infestations.
She recommends comparing the cost of owning your home to the cost of renting, as well as factoring in closing costs and paying capital gains tax if you sell your property. Ultimately, she says, a home is a long-term investment and can be a source of wealth for its owner.