How to Start Saving for a New House
We can say without a doubt that the dream of owning a house is something every individual sees and wants at least once in their life. Owning a home that’s yours to come back to on your hectic days and happy days is a dream worth dreaming about, and it’s also something that ensures you have a secure base for the years ahead.
Setting the dream aside, the reality can seem quite daunting, what with rising real estate prices, taxes, mortgages, loans and so many other things that you need to get sorted. Saving for a home is not easy, and it gets harder when you’re doing it by yourself.
Whatever the case, it’s a task that can be accomplished and it’s one dream that can be achieved through proper planning. To help you further, we give you a few tips that will help you through the journey.
1. Make A Detailed Plan
The first step towards building a saving fund of any kind is to make a detailed plan that outlines how you will reach your end goal. You can start out by first figuring out how much money you want to save for a down payment and then start building towards it. We suggest talking to a mortgage lender who will advise you on how much mortgage you might qualify for.
After deciding on the mortgage you will qualify for or how much down payment you might have to put towards a house of your choice, it’s time to decide on a time frame. Time frames can be tentative, but they act as a strong template by guiding you through the saving process. Based on your timeframe, you have to make a note of what your annual savings goal should be. Don’t forget that if your timeframe is shorter, your annual goal will have to be higher.
Tip: If you have high interest debts to repay, it’s better to concentrate on paying them off as well and not diverting all your funds towards saving for a house.
2. Map Out Where Your Funds Will Come From
As you make your plan, it’s also important to think of where the cash will flow from for you to reach your annual savings goal for your new home. While you might have a 9 to 5 job, there might be other streams of income, so it’s important to keep a check on those too.
Planning everything to the best of your ability is what will get you through this process of saving for your home, which is why we strongly recommend that you don’t slack at this stage.
3. Start Early
As it goes with everything, starting in advance is the first step to achieving a financial goal, and this applies to saving for a new home too. When you start saving for something like a house at a young age, the money that accumulates over the years will be worth the effort and sacrifices you had to take trying to save it.
Start with your monthly paycheck and put a percentage of it towards a future home. You have to be consistent with this amount, so choose something that you’ll never have to change or dip into. A great way to ensure that the specified amount goes into your savings account every month is by setting up an automated savings plan.
4. Save Unexpected Windfalls
Whenever you receive a bonus, incentive, a gift in the form of money, or anything that’s monetary, we strongly suggest that you put it in a high interest savings account or invest it in something that will give you returns when the time comes to put down money for a new house.
It can be very tempting to access these funds at different times during the years, but try your best not to touch them unless there’s a huge emergency that you require funds for. At times like these, a house might not be a priority for you and it’s okay to use these funds for another purpose.
However, if you’ve been itching to touch those funds for something like a vacation or a new luxury bag that you’ve been eyeing, stop yourself at all costs. A trick you can try is restricting your account so that you cannot touch those funds in a moment of weakness.
Saving tip: Don’t invest your money in risky investment vehicles which include stocks, shares, and real estate because the risk of losing the money when you’re saving for something as significant as a house is too big.
5. Cut Down On Luxuries
This might appear to be a very obvious suggestion, but it’s also one that’s extremely important. If you continue to splurge on luxuries that you might not really need, you’re giving up the chance of saving a significant amount of money monthly for your future home.
Take small things like buying a hoard of skincare products, or a subscription to a gym, or a streaming website. You can take these out and replace them with activities that don’t cost money but will give you the same amount of pleasure and satisfaction. For example, you can go on runs every day instead of visiting the gym and you can only subscribe to one streaming service instead of subscribing to three. Even something as simple as drinking once a week instead of thrice can save you over a thousand dollars in cash annually.
6. Draft A Monthly Budget And Stick To It
We all have months when we take a look at the credit card bill and wonder where so much money went. Making a budget is one of the easiest ways to keep tabs on where you’re spending your money unnecessarily. By doing so, you can cut down on unnecessary spending as we mentioned before and save that cash for your future home.
We suggest you make a budget for every month and write down everything you spend on in detail. If you’re someone who loves organization, you might want to utilize free Excel spreadsheets made for budgeting that are available with a simple Google search. Be sure to make a note of your expenditure throughout the month, and keep tabs on the avenues through which you spend this money. For example, you might be using a credit card, mobile payment services, and bank transfers, so keep tabs on how much money you spend through each of them.
Review your expenditure at the end of each month and see if you can cut down on spending in some avenues. Make a new budget for the next month before it starts so that you’re all ready to tackle it.
Thought of this? As you save for your dream home, we suggest that you don’t give up on every single thing that you think might be costing too much. There are some things that will make your day better like a cup of coffee from a shop, and while it might be a big sum when you calculate your monthly expenditure, it still takes you through the day. So, such costs are okay!
7. Live In A Cheaper Place
For most of us, rent takes up a very significant percentage of our incomes every month, and for some, the percentage even goes as high as 80% to 90%. Even if you move into a rental where the rent reduces by $200 every month, in a year you’ll save $2,400 which is a good chunk by itself.
If you’re not living with your family, you can also consider living with roommates or moving in with your family again. A large number of people live in their family homes in order to save for a house of their own, and it can be one of the best decisions you can make.
See also: Cheap States to Move to
8. Cut Down On Retirement Savings
It’s very common to start saving for your retirement early and put funds towards a retirement plan every month. But if you’re trying to save for something as big as a house, you might want to consider lowering the amount that you’re putting towards your retirement account monthly.
Remember that a small number goes a long way and even cutting down on your contributions by a small amount can benefit you in the long run. To give you an example, if you’ve been putting in contributions that are over your company match in a 401(k) then you should consider putting that extra money in your house fund for a while.
House buying tip: Keep your credit score in good shape because the better your credit score, the higher chance you have of getting good interest rates on the housing loan you take.
9. Earn More
We’ve put this point at the end because it’s extremely obvious that earning more will help you save faster, but it’s also something not everyone can do. While you can’t fully control your salary at a 9 to 5 job, you can do certain things that help you collect at least a little money that can go towards your house savings.
For example, decluttering your current house or storage unit and selling what you don’t need. You can also turn an artistic hobby into a small business and sell the products for a profit. Tutoring kids and babysitting are also ways in which you can collect money.
See also: How to Sell Clothes for Cash Online
As exciting as the prospect of buying a home might seem, it also requires heavy planning and months, if not years, of consistent work. But it’s one of those investments that you never end up regretting which makes the process a whole lot sweeter. As you save for your dream home, don’t be disheartened if you have to dip into those savings for an unexpected emergency, because those are a part of life. Be prepared for them, and continue to save as much as possible for your dream home.
How much income is needed for a 250k mortgage?
To qualify for a mortgage that’s worth 250k, you have to earn $63,868 annually where your mortgage has an interest rate of 4.5% for 30 years. Your down payment in this scenario will be $10k.
What is the 30 day rule?
The 30-day rule is one that you should implement if you want to purchase something expensive in the middle of saving for your house. According to the rule, when you want to purchase something expensive, you should wait for a period of 30 days before you take the step of buying it. Once the 30 day time is done, review it again and see if you still want it as badly as you did originally.
How long does it take to get pre-approved for a mortgage?
It only takes a week for a mortgage to get pre-approved, but you might spend 2 to 3 months after that looking at a house and extra time after to negotiate on a price of your choice.
See also: An Overview of Home Buying Process