Have you been looking at houses for sale recently? Are you wondering how to save for a new home? Buying a house is a big deal, and you shouldn’t just buy the first one you look at.
Purchasing a new home involves saving money for a down payment, moving costs, and other things you may need to pay upfront. Getting a mortgage can be a complex and confusing process for some people that can take weeks or even months to complete.
This is especially true for first-time homebuyers who don’t know how to start saving money or how much they will need to get the home of their dreams.
Keep reading to learn how to put a solid plan together when buying a property and discover various ways to save for a new house.
Determine Your Down Payment First
Even though everyone wants to own a house, saving up the money for a down payment is difficult. Many people are discouraged from buying a home because they believe it’s necessary to have at least 20% for the down payment.
Well, the truth is that’s not always the case and not required for some lenders. This myth comes from the PMI rule enforced by mortgage investors and lenders.
The reality is that many lenders do not require the typical 20% percent down anymore. What’s more, many banks offer conventional mortgages today, so you can now get a loan with a down payment as low as 3% and sometimes even less, depending on your circumstances.
Before applying for a home loan, you should have a clear idea of how much house you will be able to afford. Look for something within your means, so you don’t overspend and have a monthly payment that doesn’t fit into your budget.
Once you’ve determined how much you need, try to qualify for government-backed mortgage loans, including VA and FHA programs. These types of mortgages require minimal or no down payments, which makes them an excellent choice for first-time homebuyers.
Get a Less Expensive Place
Are you renting a home and planning to buy your own in a few years? If so, move to a smaller, cheaper house. Singles are advised to share the rental costs by living with a roommate. You may even want to live with friends or family for a while to save more money.
People who have trouble saving for their first house should consider moving into smaller places or inexpensive communities. This is a great way to make a living while saving money to buy a home. That said, relocate to a more affordable place or neighborhood with a lower housing cost.
You want your new neighborhood to be affordable and safe, right? If you’re looking for homes in the Sacramento real estate market, check out these neighborhoods:
- River Park
- Tahoe Park
- Natomas Park
- College/Glen
Moving to a less expensive area will lower your living expenses, which will give you the time and space to save for a new home. Eventually, you will be able to put more of your income toward purchasing a house instead of spending it all on paying rent.
Work on Building a Better Budget
Budgeting is one of the key steps in the saving process. It will let you know where the money goes each month, which will come in handy when diverting cash to the down payment. So, where do you start?
Use one credit card monthly and review the statements regularly to see how you are spending your money. This will also help you gain insight into how your cash flow is being used. Check how much you’re spending on living necessities and non-essentials, including:
- Loan payments
- Rent
- Utilities
- Groceries
- Dining out
- Celebrations
- Vacations
- Entertainment
This process can be automated using budgeting apps. Once you have calculated and categorized your monthly expenses, identify areas where you’ll be able to trim costs. For every category, set a realistic budget so that a certain amount goes toward the down payment.
Cut Back on Some Luxuries
We all have “little” luxuries like expensive meals at restaurants, fancy cocktails in bars, high-end clothes, manicures, massages, magazine subscriptions, cell phone services, cable television, etc. While these expenses often go unnoticed, they add up considerably over time.
Try to skip some of these things while trimming your routine and monthly expenses. You can save a few hundred dollars each month by putting a hold on purchasing or giving up certain luxuries. Instead, put that money into your house-buying savings account.
This can definitely help you save for your new home much faster!
Save Less or Stop Saving for Retirement Temporarily
Avoid borrowing against or withdrawing cash from your retirement account if possible. This way, you’ll end up withholding tax or repaying loans with interest. Instead, consider putting your retirement savings on hold or scaling back contributions for a while until you move into a new house.
If you contribute more than your employer match in an IRA or 401(k) retirement plan (big congrats on wise planning!), scale it back and set aside extra funds for your down payment. Thus, you’ll be able to save a lot of money in a short time.
This is only recommended for younger homebuyers, though. Those close to retirement should look for other savings methods that work for them and don’t impact their golden years.
Ask Your Employer for a Raise
If you don’t have enough money to save for a house after getting paid, consider asking your employer or manager for a raise. Many employers will evaluate and review your work ethic and job performance before making a decision.
In today’s job market, keeping staff is critical, and many employers recognize their employee’s talent and dedication to their job by rewarding them with a higher salary or quarterly bonus.
Still, you should first familiarize yourself with your job’s average pay rate (or an hourly rate) and review your employer’s best practices for pay increases. Once you’ve determined that you meet the requirements to ask for more money, you need a plan to get what you deserve.
Here are some tips on how to ask for a raise:
- Read through the handbook of your employer to see how pay raises are typically granted.
- Find out about the standard pay practice – some companies offer frequent increases, while others allow this only once a year.
- Come prepared when discussing a salary – gather performance results and relevant information on the projects you’ve been working on and highlight your successes.
- Choose the right time for the salary conversation – ask for a pay raise after successful project completion or during your yearly performance evaluation.
- Determine the competitiveness of your salary by networking with people working on similar or the same jobs in your industry.
If your employer is not interested in negotiating a pay raise, take on an additional job if you can. Many side gigs pay a decent amount of money, and you are in control at all times. Just be sure only to take on what you can handle and save every penny for your down payment.
Ask for Gift Money
Likewise, you may ask your family members, relatives, and friends for gift money. They’re going to ask what you want for special occasions like your anniversary, wedding, and birthday. Don’t be ashamed of telling them you’d appreciate receiving money as a gift instead of tangible things.
Tell them that you intend to buy a house and that you’d put that money toward a down payment. Most of them will be willing to help you save for your dream home this way and forgo gifts that are not so meaningful right now.
Wrapping Up
As you can see, there are many ways to save money and get the funds you need to purchase a new home. The sooner you start saving money, the faster you’ll get the required cash needed to make that dream a reality.
Contact us today to set up a free zero-obligation appointment to review your objectives if you need additional tips or guidance on how much money you will need for your down payment. We specialize in helping people find the home of their dreams!
