You’ve made the decision that you want to start saving towards buying a home. Now you may be sitting there wondering ‘now what?’ Here are some tips for saving for a home as well as other steps you can take to prepare your finances for home ownership.
WHAT CAN YOU AFFORD?
The first step you should take is determining what you can comfortably afford as this will determine what you need to save. For most conventional mortgages, you will need to save at least 20% for a down payment. However, there are options that require less, but you will need to pay for private mortgage insurance until your equity reaches 20%. Ideally, you should be spending no more than 30% of your take home pay on your monthly mortgage payment. Keep in mind that saving for a home may take several years and your financial situation may change during that time.
PICK THE RIGHT ACCOUNT
Once you know how much you need to save, you’ll need to select the account that will help you reach that goal;. While your regular savings account may be the most convenient option, it’s most likely not the one that will get you to your goal the quickest. Look into a Money Market account which will give you a higher interest rate with a higher balance.
PAY DOWN DEBT
Take a look at the debt you are currently carrying and try to pay off as much as possible before you buy a home. This will allow you to allocate more of your money towards saving and then once you buy a home, you can build up an emergency savings that can help cover any issues you encounter as a home owner.
INCLUDE OTHER EXPENSES
Along with your down payments, there are other expenses you will need to pay during the home buying process, such as closing costs, realtor fees, lender fees, appraisal fees, etc. Do your research to find out what the average price of these items are and build them into your budget.