When it comes to how to save for a house, there is a lot to consider, financially. You will first need to review the types of mortgages available, in order to find the one that is right for your budget. Then, you will have to assess your down payment options, and ensure you have the funds to contribute to that part of the home shopping equation.
Creating a realistic personal budget with plenty of time to save for a home will ensure your finances are in order, when the time comes to sign over for your keys. Not sure how to save money? Let us guide you through information on what to expect, expense-wise, when buying a new home, along with tips on how to create a proper budget and how to save up, in lieu of becoming a homeowner.
What are the expenses involved in a saving for a home?
How to save money effectively in lieu of purchasing a new home becomes a bit easier when you understand everything associated with a home purchase. If you are asking, “How much can I spend on a house?” the answer will depend on several factors that go far beyond the budget for your home, itself. Consider additional costs like your:
- Down payment. In order to secure your mortgage with a lender, you will likely need to put a down payment on your home. Your FHA down payment will typically amount to 3.5 percent if you have a credit score of 580 or higher. When crafting your home budget plan, make sure to assess your credit to come up with an estimate of how much you will owe for your down payment.
- Closing costs. The costs associated with closing on a home are sometimes overlooked. Make sure you understand any fees charged by the type of mortgage lender you choose, as well as any other third-party services that assist with the processing of the financial transaction. Make sure to request these estimates upfront, in order to avoid any unpleasant surprises.
- Monthly mortgage payment. Once your FHA down payment is secured, you will then need to commit to your monthly mortgage payments. These payments amount to a portion of your loan, combined with interest, that will go to your lender. You can employ a mortgage calculator to do the math ahead of time.
- Property taxes. Do not forget to factor in taxes that may be levied by your local government on your home. Property taxes tend to vary widely, from state to state, and you may have the option of paying them monthly, quarterly or annually, depending on where you live, or including them, directly, in your monthly mortgage payment.
- Homeowner’s insurance. When you save for a mortgage, as well as all of the above costs, make sure to factor in homeowner’s insurance, as well. Most lenders want to protect their investments in homes, which is where home coverage comes in. Speak to your lender about the minimum coverage requirements, so you can factor this expense into your home budget plan, as well.
How to Create a Personal Budget
Now that you what is associated with how to save for a house, let’s discuss how to save money, so you have everything you need to become a successful homeowner. Tips associated with how to make a monthly budget that works for you include:
- Track how much money is coming in: This is a crucial step in understanding your earnings. In addition to work-related earnings, track your assets and any earnings associated with investments.
- Review your monthly bills and expenses: By understanding the total expenses you allot toward your bills and expenses, you will have a better understanding of what is left for you to stash aside to buy a home. Review costs associated with: your current rent, your car, your credit card bills, auto and health insurance, additional medical expenses, groceries and leisure expenses.
- Only spend on necessities. Once you review your bills and expenses, you can go through the motions to ensure you are only spending on necessities. When you are able to view your leisure expenses, it will help in understanding your personal budget, and what you should not be expensing during this critical time.
- Record your personal financial goals. Create a timeline associated with your home budget plan, and work on realistic financial goals. This will give you a better idea on your timeline surrounding a home purchase. You will be able to assess if you can buy a home in the next three months, six months, or perhaps, a year.
- Download an app. Thanks to technology and smartphones, you can now access apps that will help you track your spending habits. This is a great tool in personal budgeting, and remains organized and digital, for your convenience.
- Set yourself up for success, not failure. Along with developing realistic goals, you must ensure you are setting yourself up for homebuying success, not failure. Purchasing a home should be an exciting time, albeit financially stressful, so try to think positive when creating budgeting goals.
How to Save Money
Once your personal budget is underway, it is time to start saving. Not sure how to effectively save for a house? Tips that will ensure you are a master at saving money include:
- Use cash as a limitation. By using only cash for transactions, you can put hard, physical limits on your spending.
- Freeze your credit cards. Take this literally. If you have personal budgeting issues, you can submerge your credit cards in water, and freeze them, so you are not tempted to use them.
- Start clipping coupons. Look to your weekly coupon clipping as a fun activity. Once you realize how much you could be saving on weekly expenses, you will – no doubt – feel the thrill associated with this trend.
- Shop sales and keep it local. If you subscribe to email marketing, then you know plenty of sales happen throughout the year. When it comes to personally budgeting when shopping for clothing and/or home goods, make sure you are only shopping when sales are being honored. When purchasing food, watch for weekly deals, consider joining a food co-op or shop locally, through farmers markets, for the best pricing.
- Create an automatic savings filter. If you are unsure of how to do this, call your bank for assistance. You can likely create a filter that will send a certain amount into a savings account from your checking account, which takes the thought and legwork out of making transfers on your own.
- Ask about employer-matched retirement benefits. Many workplaces offer the matching of your retirement fund. While this may not come into play with your real-time finances, this can provide a future cushion, taking your savings account out of the equation.
- Stash your refunds. Make sure you are taking the time to set aside your tax refund from the IRS. This is money for which you already accounted in your personal budget, so saving it, versus spending it, should be a no-brainer.
- Employ the 24-hour rule. Instead of feeling the guilt associated with buyer’s remorse, enforce a 24-hour rule when it comes to spending on non-necessities.
Pay your bills through auto-pay. This tactic will help you save on late fees, which can total into the hundreds per year to put toward your mortgage savings, instead. Make sure all of your bills are automatic, and you will reap the benefits, instead of paying for the consequences.