Buying a home is a milestone for many Americans, and it’s also likely the significant purchase they will ever make. Saving up enough money to buy a home can seem daunting for many first-time buyers. In addition to your down payment, you will need to prepare enough funds to cover everything else that goes into becoming a homeowner, such as closing costs and any repairs that need immediate attention.
When you have other expenses that you need to cover in your life, like rent, student loans, and auto payments, it can be hard to find additional money to set. However, you can use some strategies and tips to save more money and get you ready to afford your new home.
1. Create Your Budget
The best place to begin is developing your budget and determining what price range of home you can afford. According to Investopedia, many prospective homeowners can afford to mortgage a property that costs between 2 and 2.5 times their gross income. For example, if you earn $100,000 per year, you can afford a house between $200,000 and $250,000.
Another aspect to consider is the amount required for your down payment. Nowadays, there are various types of mortgage loans that you may qualify for, which feature down payments as low as 3.5%. It’s worth your time researching these different loans since the classic 20% down payment might not make sense for you and your situation.
To better understand where you can save money, you will need to have a clear understanding of where your money is being spent. Review your current expenses by checking your bank statements and credit card payments and use this to identify ways to divert those costs into saving for your mortgage. You can even set up automatic transfers to your savings account so that you prioritize the money you need to save by setting it aside so that it is out of reach for immediate spending.
Downsizing is an effective way to reduce your living expenses and free up funds to save for your new home. The simplest way to do this is by moving to a smaller apartment or moving to a more affordable area while you are renting. Chances are, you won’t miss the extra space, and the change will only be temporary until you have your new home.
With your budget in place, you can slowly begin to reduce your other living expenses marginally. For example, if your current budget for groceries is $400 per month, try to bring it down to $350 the following month. Minor changes to your budget like these can add up to a sizable amount of saving each month and won’t change your current lifestyle drastically.
Along with downsizing your current lifestyle, you can cut out some excessive splurges in your budget and adopt a more frugal approach when it comes to spending your money. Some ways to embrace frugal living include:
- Cut down on impulse buying: Avoid extravagant shopping sprees and instead focus on replacing essentials items. Help yourself by removing temptation and unsubscribe from mailing lists to avoid having your inbox full of promotions and sales.
- Skip ordering takeout: We all know ordering out can be convenient now and then, but it can add up when it becomes a habit.
- Cancel subscriptions: If you are paying for subscriptions, whether it’s streaming services or gym memberships that you rarely use or don’t use at all, it might be time to cancel them.
- Find better rates: Compare prices and your current rates on insurance, cell phone providers, internet, etc., to see if you can find a better value than you have currently.
4. Asking for a Raise or Seek Out Other Employment Opportunities
If you do not have any funds left over each month once you cover your living expenses, you may want to increase your income to save money.
- Asking for a Raise: Timing and preparation is critical for this venture. Your annual performance review is a prime time to start the conversation about a raise or promotion. Be sure to come ready with numerous examples of project you have worked on and their results.
- Find a Better Paying Opportunity: Look around at other job listings to see what others in your line of work are making and see if there are open positions that have higher salaries than what you currently make. Be sure to note that this can impact your loan approval, as lenders want to see consistency in your employment, among other areas like debt repayment.
5. Start a Side Hustle
There are various opportunities in the “gig economy” to earn money on your downtime to supplement your earnings from your primary job. For the most part, you get to choose when you want to work, which gives you the freedom to take advantage of this revenue stream when its works for your schedule. Here are some options you may consider:
- Freelance Work: Use your skills as a writer, coder, photographer, etc., to take on a contract for projects on the side.
- Become a ridesharing driver: If you have a car, you can drive for Lyft or Uber to choose when it works for your schedule.
- Rent out a room or parking spot: Have a spare room or open parking spot, considering renting it out through a company like Airbnb.
6. Skip Your Vacation
Vacations are a great way to get away from the slog for everyday life and recharge yourself. However, covering all the travel expenses, lodging, food, and activities can add up quickly to be quite expensive. You may consider postponing your travel plans until you have closed on a house and use the money towards your down payment instead. Of course, there are alternatives if you don’t want to give up your vacation entirely. Explore locally by looking up historical sites or museums in your area. You can also plan a trip on a smaller scale, such as a weekend road trip that can satisfy your travel urges.
7. Reduce Your Debt
While paying off loans to reduce your debt may leave you with less money to save per month, it will pay off toward improving your debt-to-income ratio (DTI). Your DTI plays a part in determining what sort of loans rates and the amount you are eligible to receive. You may even consider refinancing certain loans, such as student loans or car payments, for example, to reduce your monthly payments or find lower interest rates.
Reaching Your Homebuying Goals
Saving up for your mortgage is doable! Using the strategies laid out to you and coming up with a specific plan that works for your situation, you can become a homeowner.