Saving money for a house can seem like an uphill battle. But don’t worry. It’s simpler than you think when you have a plan. With a strong will and a step-by-step approach you’ll be choosing paint colors sooner than you think. Here’s a how-to guide to becoming a homeowner.
Tired of renting? I get it! As rental prices continue to rise and interest rates for borrowing money are kept low, buying a house becomes an ever more attractive option. However, investing in a home is a great commitment and you shouldn’t just rush into it.
Make sure you’re financially prepared by following these 5 steps:
Step 1: Know your budget
Start by getting your finances in order:
- Determine your income
First thing you need to know is how much money you have at your disposal each month. If you receive a fixed income, this should be easy to find out. In case your pay varies, try to come up with a reliable average that you can count on.
- Calculate your expenses
Your expenses include fixed costs like rent, car payment, insurance, electricity and Internet bills. Add your variable expenses to come up with a total – these may include items like groceries, dining out, clothing and entertainment.
- Compare your expenses to your income
Ideally, your budget shows a positive balance, meaning that you have extra money at the end of the month that you can put towards your savings.
- Adjust if necessary
If you notice that you’re overspending in any category, you can always make changes. Keep tweaking your budget until it works for you! By the way, in case you find that you’re spending more on groceries than you want to, I have some tips for you.
- Re-evaluate your budget regularly
After each month go back to your budget and re-evaluate. This will help you to observe and adjust your income and expenses as your financial situations changes.
Step 2: Determine how much house you can afford
Before looking at homes, figure out what amount you can comfortably afford on a monthly basis. As a rule of thumb, you should try to keep your total housing payment under 25% of your total income. Make sure to factor in all costs including mortgage, property taxes and home insurance.
Step 3: Shoot for a down payment of 20%
The down payment is the biggest immediate cost when you buy a home. If you manage to pay at least 20% of the total amount up front, you can significantly reduce your monthly payments. Also, you’ll be able to get a more beneficial interest rate, saving you money in the long run.
Step 4: Implement a savings plan
As soon as you know what kind of house you want to buy and how much that will cost you, you can set up a savings plan. What’s the amount that you need for your down payment? Divide that number by what you can put away each month and you’ll see how quickly you have that money saved up.
Step 5: Stick to it!
Once you have developed your savings plan, the most important thing is sticking to it. Saving up for a home is a marathon, not a sprint. Therefore, you need to make sure that you don’t lose sight of your goal. Put up a picture of the house want to buy or take a regular stroll through a neighborhood you’d like to live in – whatever motivates you to keep up the saving spirit. Because, in the end, the goal isn’t money, but manifesting what you wish for.