Saving For a Home
Whether you’re looking to get into the housing market immediately or not, you may have begun saving for when that time does come. If you haven’t, it may be intimidating to start but it can be much more simple than you’ve previously believed. Here are our tips for those looking to start saving for a home!
To begin, you may be wondering “Well, how much should I even be saving?”. This is the first step of the process: doing the math to find out how much you should save. It’s advised to sit down with a lender to fully understand and plan your finances, 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 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 have to add the down payment that you plan on paying on top of that.
This likely seems overwhelming, but a trusted lender can simplify your finances for you and help you determine a timeframe, that being the next step. Roughly figure out when you plan on buying a home. Depending on how soon that may be, this will affect how much you will need to be setting aside annually. Your lender can help you to come up with the best way for you to save. Often it is recommended to avoid investments that are risky since you’re saving for a specific amount that you’re trying to reach within a timeframe. Therefore a savings account is generally the best and least risky option.
In order to avoid how painful it can be to pull some of the money from your paycheck, set up your direct deposit so that a certain percentage goes straight into your savings account. As time passes, you’ll forget that you are even funneling that amount into a separate account, and you will learn to make your new budget work. Mentioning budgeting, this will likely become a part of your life as well. Find expenses that you can cut back on, or possibly even cut out completely (ahem, cappuccinos). You’ll be amazed when you realize how much those small expenses add up. Similarly, instead of treating yourself to something with holiday bonuses or tax refunds, just put it straight into your savings. This may be painful as well, but you’ll thank yourself further down the road.
Overall, the most difficult part of the process is beginning, so don’t allow that to intimidate you. Speak with a lender today if you feel that you need help with this process!