The past two issues of Living Out have covered what to know before you apply for a home loan and when you should apply, along with what to expect. In this issue, the road to homeownership covers how you can make your dream of owning a reality.
Making the move from renter to homeowner is challenging for nearly everyone, and the highest hurdle for most first-time buyers is saving enough money for a down payment. If your No. 1 priority in the next few years is to become a homeowner, you’ll need to make some aggressive moves to cut your spending, boost your income, or both.
To get started, set a timeline and break up your savings goals. To save $20,000 in two years, you’ll need to save $833 a month for the next 24 months. To save $30,000 in two years, you’ll need to save $1250 a month for the next 24 months.
Create an account that will hold only savings designated for your new home. This can help keep you organized and track your progress.
Stay Committed to Buying
If you’re truly committed to buying a home and can handle some big changes in lifestyle, you could move in with family for a defined period of time. You could also move to a smaller apartment or if you have a spare room, take in a renter until you save what you need.
Another possible lifestyle change is to bring in more income by working overtime if possible or taking on another job.
Add Up to Big Savings
Finding other expenditures to trim requires creating a budget to see where your money is going.
Some of the easier expenses to reduce or eliminate include new clothes, shoes, and other stuff; daily expenses like your morning specialty coffee; monthly expenses like a Netflix subscription; and gas and parking costs (consider carpooling or take public transportation).
Keep in mind when you’re in super-saver mode to ask yourself out loud, ‘Do I need this or want it?’ before you buy anything.
Take a critical look at all of your expenditures — gym memberships, vacations, entertainment — to see where you can cut back to meet your savings goal. While you don’t want to drain all the enjoyment out of your life, you can keep spending in check without sacrificing much.
If you’re contributing more to your 401(k) than the company will match, temporarily scale back your contribution to the company match for a couple of years and put that extra cash in your down payment fund.
Stash Your Cash
Options for Saving Money
When you’re saving for a short-term goal, it’s recommended you stick with a low-risk investment such as a high-yield account or a CD. A credit union or an online bank usually offers better interest rates on savings than most traditional banks.
While it is tempting to invest your down-payment savings for a higher return, be aware that there’s always a risk that an investment will lose money. The rate of return on your down payment savings is less important than making sure the money is available when you need it.
Whether your goal is to buy a house or meet some other financial obligation, you’ll need discipline and an aggressive savings plan to achieve it. But following the savings tips above will “help” put your goal within reach.