Money Smarts Blog
How to save for your first house
Mar 18, 2015 | Amanda Spurgeon
Making the move from renter to home owner is exciting, but it can also be intimidating. Your home will likely be the most expensive purchase you ever make, so it’s important to plan responsibly. Try using one of our financial calculators to help figure out if buying or renting is the best option for you, how much house you can afford, and estimate your monthly mortgage payment.
Experts agree that a home should cost no more than two-and-a-half times your annual income. Most lenders require a down payment equal to 20% of the home’s total purchase price, but how do you save that much? Here are some tips to make saving for your home a little easier.
Create a monthly budget
The only way to save is to spend less than you earn. Any savings goals you have will begin and end with your monthly budget. Setting unrealistic goals isn’t going to get you anywhere, so be honest and accurate about what your family earns and spends, then stick to it as much as possible.
Need some help setting goals and sticking to them? IH Mississippi Valley Credit Union offers FinanceWorks, a free budgeting tool within Online Branch. You can use it to set spending goals, track your purchases, and plan for saving. It updates in real time and will even send you text or email alerts when you reach or exceed your limits.
This may seem like an obvious move, but it’s definitely important. By reducing or even cutting spending on things like clothes, shoes, fancy coffees and cable, you might be surprised at how much you save each month. If you take the time to develop an accurate monthly budget and eliminate the some of the “wants” from your list, you’ll find it’s easier to put more money away.
Don’t overdo it, though. It’s hard to stick to your goals if you’re frustrated or unhappy every month. Trying to cut all your family’s “wants” is unrealistic. If you’re someone who enjoys dining out, try cooking a fancy meal at home once a week with premium ingredients. Are you really going to miss those specialty coffees in the morning? Try making your own flavored syrups and getting caffeinated at home for less money. If you decide to cut cable or trips to the movie theater, try signing up for an online service like Netflix or Hulu that’s often far less expensive.
While spending less may seem like a no brainer, people often don’t consider how they can bring more money in. Consider adding a part-time job doing something different from your career. If you find a part-time job that’s in line with your hobbies, it may seem less like you’re working on the weekends. Are you handy? Try the local home improvement store. Crafty? Inquire at a fabric or hobby store. If you’ve built a good budget, you don’t really “need” this money and it can easily go into your savings.
Cut back retirement savings
If you have an employer-matched 401(k), it’s a good idea to continue contributing enough to qualify for the maximum employer contribution. While you’re saving for your home, scale back to just the match amount and put any additional cash you may have been contributing towards your down payment. You’ll still be saving for your future, just in a different way.
If you qualify as a first-time home buyer, you may be able to take up to $10,000 from your IRA penalty free to help fund your home purchase. Just know that you’ll have to pay any applicable income taxes on the withdrawal amount, depending on your account.