Saving For a House: 4 Tips to Buy Your Dream Home

Saving For a House: 4 Tips to Buy Your Dream Home

Beautiful country house in the fall

We've all fantasized about the day when we can buy our dream home. Regardless of what stage you may be at in your life, it's a goal many people want to achieve. What some experts fail to tell people, though, is that saving for a house can be a lengthy process - and we're not just talking about the time spent house hunting and closing on the mortgage.

Few potential homebuyers have tens of thousands of dollars for a down payment readily on hand at the drop of a hat. When you work a low-wage job, you're drowning in debt, or the housing market in your area is on the pricier end, saving up for such a large purchase can feel impossible. However, there are steps you can take now to work towards your goals. Follow these tips and, within a few years, you can be in a better financial position to buy your dream home.

Cut Your Spending

Before you can start saving for a house, you need to track your personal expenses to see where your paycheck currently goes. Focus on purchasing essentials and cut out extra where you can. For example, if you're monthly grocery budget is $300, try to reduce that to $250. Opting for generic over more expensive name brands is the easiest way to do this. It may sound like an insignificant move, but when you apply this trick across all of your spendings, you'll be surprised how much you can set aside towards a home down payment in the future.

Write Up a Budget

The next step when saving for a house is to create a budget. The bank may say you can spring for a more expensive home, but what you can actually afford may be something completely different. Besides the mortgage, there are other costs to consider, such as insurance, property taxes, and utilities. So you need to decide what you can comfortably afford and work from there.

This is where that down payment comes in. If you can save up for 20%, you're far less likely to require private mortgage insurance, which will add hundreds of dollars on top of your base mortgage payments. Those with better credit scores (say, 700 or better) may qualify for loans with only a 10% down payment.

Pay Your Future Mortgage

As you get closer to purchasing a home, consider putting the difference between your current rent and your expected upcoming mortgage into a savings account. This way, you'll get in the habit of making that larger payment every month before it has to be done. As an added bonus, you'll have even more money saved towards either the initial purchase or as an emergency fund if you can't make a payment for some reason.

This is where that down payment comes in. If you can save up for 20%, you're far less likely to require private mortgage insurance, which will add hundreds of dollars on top of your base mortgage payments. Those with better credit scores (say, 700 or better) may qualify for loans with only a 10% down payment.

Add To Your Savings First, Not Later

As a general rule of thumb, most people wait until month's end to calculate what they can put away in a savings account. Problem is, there usually isn't any money left over at that point. To get serious about saving for a home, it's better to set aside what you can first. It can feel unnatural to do it this way, but with some practice, you can adapt to the habit.

It can be tempting to dip into your savings for whatever reason. To avoid this, consider getting an online savings account or at least one at a bank different from your checking account. Online accounts tend to have better interest rates than at conventional banks, so you'll want to shop around.

Saving for a house can be a daunting task, but it can be done! With a little planning now, you'll be well on your way to buying your dream home in no time.

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