Saving for a new home and the subsequent process of buying it is one of the most exciting moments in a person’s life. It usually marks the beginning of a new chapter and you want to make sure that you get the perfect home. However, buying a home can also be an incredibly stressful and expensive experience. There will be lots of questions that you need to answer such as:
- What’s the average cost of a home in my area?
- How much money will I need for a down payment?
- How long will it take me to save for the home that I want?
To help answer some of these questions, we’ve put together this guide on how you can save for a new home.
Determine your budget
The best way to start saving for a home is to determine what type of budget range you have available to purchase a house. The best way to do this is to just start shopping around for houses that you might be interested in living in. You can see what the asking price is for houses that you like and this will help you determine how big of a down payment you will need.
A down payment is simply the amount of money you need to pay upfront in order to secure the amount that you need to borrow. In most cases, you pay for a portion of the house upfront (the down payment), and the rest is secured through a loan (that you will repay in monthly payments, called a mortgage). Most mortgages last for 30 years.
To get a good idea of what the down payment will be, you can use this tip:
- The average down payment for a house in 2019 was approximately 12% (and for first-time buyers, it was just 6%). This means that if the house you want to purchase costs $300,000 then you will need to put down approximately $36,000 (300,000 * .12 = $36,000).
- Keep in mind that the exact number may be slightly different for you depending on things like your credit history, the lender you work with, the length of your mortgage, and other factors.
By simply shopping around for houses that you are interested in and doing these simple calculations, it’s a good way to see if you’re being realistic with yourself. If the down payment that you need is way out of range, then you know you either need to make some lifestyle changes to help you save or start looking for houses in a different area.
Set a timeline and savings plan
Now that you have a rough idea of how much you’ll need to save for the type of home that you want to buy, it’s time to set a timeline and savings goal. By this, we just mean you’ll need to determine how much you can realistically set aside each month and how long it will take to reach your goal.
- For example, let’s say you were saving from scratch to reach the $36,000 down payment goal from the previous example. If you’re able to put aside $1,000 each month it will only take 36 months (or 3 years) to reach your goal. If you put aside $500 each month, it will take twice as long (6 years).
If you don’t want to wait that long to save for a down payment you might want to consider:
- Purchasing a less expensive home.
- Working with your lender to see if they can offer you a lower down payment or other flexible payment options.
- Focus on creating additional side income to help increase the amount that you can save each month.
We hope that you’ve found this article valuable when it comes to understanding the process behind saving for a new home.