Nothing defines the achievement of the American Dream more than purchasing a home and achieving homeownership. The real estate market can be pretty cutthroat, so you need to be “in it to win it” from the start of the process.
This major life milestone is likely the largest investment you’ll ever make in your lifetime. And, with the right approach, the rewards will certainly be worth it for first-time homebuyers.
Buying a house, however, requires a significant sum of money, as well as a strong handle on your personal finances. Not only do you need enough money to cover a down payment and closing costs, but also the monthly payment and extra added costs that will come once you move in — like utility bills, garbage pickup, and landscaping — you’ll likely be on the hook for property taxes, too.
The good news is that saving to buy a home is an attainable goal. It just requires a little bit of strategic planning and some savvy financial decisions. Although it might take time to save a substantial amount of money, these 10 tactics can accelerate the process — bringing you that much closer to owning your dream home.
1. Know what you want from the beginning
First, you’ll need to figure out exactly what you’re looking for in a home. How much house can you reasonably afford to pay? This determines your home loan. How many bedrooms do you need? How many bathrooms? How big does the backyard have to be? Answering these questions will help you determine how much down payment savings you’ll require, which should be 20% of the home’s value at a minimum. Following mortgage rates closely and use a mortgage calculator to determine how much you’ll have to pay based on the mortgage lender’s rates.
2. Pay off any accumulated debt
Unpaid debt racks up significant interest over time, making it harder and harder to pay off. While a little debt may be beneficial, too much can hurt your credit score, decreasing your chances of receiving a loan or buying a home at all. If you’re saving to buy a home, decreasing your credit card debt — or, better yet, completely eliminating it — will ensure more of your paycheck is going towards your savings rather than your bills.
As you begin repaying debt, pay off high-interest debt (e.g., credit cards) first, and work your way down from there. Regularly monitor your credit report as you pay off your debt so you can monitor the progress you are making.
3. Eliminate unnecessary expenses
As a homeowner, do you really need a subscription to every streaming network? Do you really need to eat out for the second night in a row? Saving for your first home often requires making a few lifestyle and financial changes. Think about cutting down on excess expenses. You need to pay your bills and buy groceries, but you probably don’t need that new pair of Air Jordans. Reduce your cash outflows and put those savings toward the house of your dreams.
4. Pick up a side job or freelance work
One easy way to save for your first home is to pick up extra work gigs. Even if you’re working a full-time job, there are all kinds of jobs you can do on the side — like driving for Uber, bartending, and working in retail. Do you have a particular skill set you can exploit to make money? This is your time to shine. Whether you’re a graphic designer, a copywriter, or a software developer, you should be able to pick up a side hustle that pays decent money. As well as contributing to your savings, you can also use the extra income to start an emergency fund which could come in handy later on.
5. Stockpile your tax refund and bonuses
It may be tempting to immediately spend that tax refund, a well-deserved job bonus, or check you receive on your birthday on something nice and immediately rewarding. However, setting savings goals and that money aside brings you one step closer toward reaching your goal of buying your first home. Think of that money as a long-term investment — not a temporary short-term prize.
6. Rent a spare room
Do you have a spare room or an underutilized living space in your home? With the housing crisis in full effect, several people are turning to more affordable living options that include room rentals and accessory dwelling units (ADUs). If you have extra space in your current home — or you end up with an extra room in your new home —you can rent out a spare room extra cash. Once you’ve bought your first home, you can rent out extra space to help pay your mortgage, utilities, and taxes.
7. Utilize budget tracking apps
Managing money to save for your first house can take a lot of time and effort — especially when tracking every expenditure and account balance. Although using pen and paper still works, there are a number of purpose-built budgeting apps and digital tools that can save you a lot of time in the long run. Some of these apps connect to your bank account and help you categorize your expenses and stick to your budgeting goals. With the right budgeting app guiding the way forward, saving to buy a home doesn’t have to be a chore.
8. Look for better job opportunities
If you’re having a hard time saving for your first home, it might be time to look for a new job that pays more. Before you jump ship, you may want to ask your current company whether there are any opportunities for advancement. But since research suggests that job-hopping is the easiest way to boost your salary, it might be time to pursue a new venture. If this isn’t an option for you, consider asking your boss for a raise — especially if it’s been a while since you’ve had one.
9. Open a high-yield savings account (HYSA)
In recent years, new high-yield savings accounts have emerged, offering considerably higher interest rates than traditional money market accounts. These financial providers — like Ally, American Express, and Discover — are able to pay you more for their money because they don’t have any physical branches. While an HYSA won’t make you rich overnight, it will help you earn more for your money, without any risk. A simple Google search will reveal the best HYSAs to consider.
10. Reduce your retirement savings contribution
Since you’re buying your first home, chances are you’re not ready to call it a career anytime soon. To save money for a down payment, you may want to consider temporarily decreasing your monthly 401k contributions. If you decide to move in this direction, don’t make it a habit. Once you have enough extra money saved for your first home, boost your contributions. Preparing for retirement is almost as equally important as having the security of your own property.
Despite how difficult saving for your first home may seem, it’s not impossible. By making changes to your spending habits and incorporating a few strategies, you can achieve your financial goal of becoming a first-time property owner.
Ready to start thinking more about buying your first home? Talk to one of our experts today — for free.