Congratulations! You’ve decided to take the big leap and buy your first home. As exciting as this step in life can be, it takes a lot of hard work to get there. This article is a general overview of what you should expect when taking the leap and saving toward your new home.
Recent fist-time home buyer Zach Cooper took the plunge last summer and bought his first home in Boise, Idaho. The young professional purchased the home as an investment in his future and rents out some of the rooms for now to roommates to help supplement his mortgage.
“The most important thing I did when saving to buy a home was to cut out all the non-essentials,” Cooper said. “Overall, it took me eight months to save for my down payment. It may take others longer, but that was my experience. The most challenging part was figuring out what loan I wanted and when I wanted to close on my new home.”
Cooper brings up an interesting point. One of the first steps in buying a home is figuring out what type of loan you want. There are several to choose from (an FHA loan for example), and each type of loan has slightly different requirements for qualification. However, before you can worry about that, you need to save for your down payment.
Perhaps the easiest way is to just cut out the non-essentials, like Cooper did. However, sometimes essentials are hard to define. What exactly is an essential? The answer probably depends on how fast you want to save the money. Determine how quickly you want to save for your down payment, and then determine how much money you have to put away each month in order to reach that goal.
A good rule of thumb to follow when saving money is this: Once the money goes into your savings account, it doesn’t come out until you’re ready to spend it on what you put it there for. This can take some discipline, but in the long run it’s worth it. Would you rather have an expensive latte every morning from Starbucks? Or save that $4.00/day and put that in your savings account for your future home?
Last, it’s important to keep in mind what you want your monthly payments to be when you buy your home. “It’s important to remember that the more money you put down up front, the lower your payments will be,” Cooper said. “For me, I wanted to close on my house faster, so I put the minimum down. For other people, they might want lower payments and so they’ll wait longer to close until they can come up with more money down. Figure out what is best for you and your situation and make sure you’re making the most out of your investment.”