You may have begun to toy with the idea of getting into the housing market, but realized your finances aren’t quite ready. With that being said, maybe you’ve begun to save up for when the time comes. If you have yet to begin doing so, it can be intimidating to start but it can be much simpler than you realize. Here are a few tips for those individuals looking to start saving for a home!
You may be wondering what is the appropriate amount for you to aim for. This leads you to the first step of the process: doing the math to find out how much you should save. It’s generally advised to sit down with a lender to fully understand your finances and get a professional opinion, but the rule of thumb is that your housing expense should not exceed 28% of your monthly income. Therefore, multiply your monthly income by .28. The figure you come up with will then account for the mortgage principal and interest, real estate taxes, private mortgage insurance, homeowners insurance and any homeowners association (HOA) dues you may be paying. You will also add the down payment that you plan on paying on top of that.
This may seem overwhelming, but as previously mentioned, a lender can simplify your finances and help determine a reasonable timeframe for you to save the necessary amount. Similarly, you’ll want to try to determine, roughly, when you plan on buying a home. Dependent upon how soon that may be, this will affect how much you need to be setting aside annually. When it comes to investments, often it is recommended to avoid potentially risky investments since you’re saving for a specific amount that you’ll want to reach within a timeframe. Therefore a savings account is generally the best and least risky option to go with.
A method for saving that many people like to do is to set up direct deposit so that a certain percentage of your paychecks goes straight into your savings account. This saves you from second guessing pulling money from your paycheck to go towards your savings, making it much less painful. After time passes, you will forget that you are even funneling a percentage of your paycheck into a separate account, and you will learn to make your new budget work. Budgeting will likely become a part of your life as well. Find expenses that you can cut back on, or possibly even cut out completely. You’ll be amazed when you realize how much small expenses add up, such as buying lunch out instead of packing one from home, or your daily morning espresso from a cafe. Similarly, another great way to build up your savings is by committing to deposit all of the “extras” into your savings as well. These could be anything from holiday bonuses to tax refunds. You’ll thank yourself further down the road when you’re closer to your goal.
The most difficult part of the process is starting, so don’t allow that to intimidate you. Speak with a lender today if you feel that you need help with this process!