If you’re like most people, making a down payment on your home will be the biggest single expense you ever have.
Saving for your first home can seem like an unattainably large financial goal if you don’t take the time to make a plan. That’s why it’s so important to break it down into smaller steps.
Figure out your budget
There’s no way you can meet a financial goal if you don’t have a number you’re working toward.
That’s why the first step—way before you even start looking at homes—is to figure out how much you can truly afford. And truly affording your first home means you have to account for a mortgage payment, homeowners insurance payments, real estate taxes, as well as an ongoing savings fund for home maintenance.
Once you know that number, you’ll be able to see what your price range should be, and from there, you can decide how much of a down payment you want to save for (generally between 10 and 20 percent of the home’s value).
Determine your timeline.
In order to figure out your annual savings goal, you’ll need to know when you want to buy your house. That could be in two years, or five years, or 10—the specific number doesn’t matter.
Alternatively, you could figure out how much you can afford to save each month or each year, and use that to guide you in making your timeline. If you’re able to save aggressively, obviously that timeline will be shorter; if not, you’ll need to give yourself a longer runway.
Pay down your debt.
Saving is much harder when you’ve got debt eating away a large amount of your income every month.
If you’re carrying credit card debt, conventional wisdom says to focus your payments toward either the card with the highest interest or the lowest balance. The former will probably save you more money in the long run, but the latter will give you a quicker psychological win, motivating you to keep going.
Save your money first, not at the end of the month.
The thing about saving is that many people tend to put it last on their priority list—even if they tell themselves that they’re putting it first.
In other words, most people pay their monthly expenses first, and put what’s left over into savings (if there’s anything left!). However, that’s an almost guaranteed way to not meet your savings goals. Instead, get in the habit of putting your money into savings first. If you find you don’t have the money to meet your expenses after that, then either your savings goal is too aggressive, or you’re spending more than your budget allows.
Cut out any unnecessary expenses
Paying for cable when you’ve already got Netflix, Hulu, and Amazon Prime? Cut the cord. Spending money on subscriptions you rarely use? Cancel them.
Go through your monthly bank statements and circle any expenses you see that you could do without. You may be surprised at how much money dropping those expenses can free up.
Consider selling items you don’t need or use
Most of us have items around the house that we don’t need or use—we may not even remember that we have them at all!
Put them to good use and free up some space in your home by selling them. If you have a bunch of smaller items, like clothes, knicknacks, or kitchen gadgets, a yard sale may make the most sense. If you have larger or high-value items, however, like furniture or expensive jewellery, selling them online through Craigslist or Facebook Marketplace may be worth your while.
When it’s time to start looking, find a great real estate agent
A great real estate agent is an important factor in not only finding your first home, but ensuring you get the absolute best value out of the transaction.
Agents will know whether sellers are asking an unreasonably high (or low) price for their home. They’ll know what repairs you should ask the seller to make, and which ones you should request a credit for. They may even be able to work with a mortgage lender to get you a loan with a smaller down payment, leaving you with savings you can then put toward home maintenance, retirement, or other major life goals.
Saving for your first home can seem overwhelming at first, but if you take a step-by-step approach, you’ll see your savings account grow before your eyes.