Are you interested in purchasing a home? Are you overwhelmed by the concept of saving for your next down payment? Are you feeling defeated by continuously hearing that it is a seller’s market? IF you answered YES to any of these questions, we may be able to provide you some direction and tips on how to save for your next home.
Most of our clients who are first time homebuyers acutely feel the pressure of their purchase. Buying a home is a life-altering decision that can place major financial strain on your family. That is why we have created a list of saving strategies that can help you prepare for your home purchase.
First and foremost, it’s crucial that you understand how much you should save up for your down payment. Until you have settled on a home, you will not have a precise answer – but a good estimate is enough to get you started. If you are a first-time homebuyer, you may qualify for an FHA loan (or Federal Housing Administration loan). This means that you will only need to put down 3.5% on your home purchase – so if you are purchasing a home at $500,000, you will need to put $17,500 down. However, if you do not qualify for an FHA loan and you require a conventional loan, you may need to save 20%. The purchase price will depend on what the lender allows you to qualify for. Try getting a pre-approval from a lender before moving forward. Understanding your pre-qualification will give you the best idea of your purchase price and of how much you will need to save.
Next, it is time to start saving! Here are a few tips to saving for your down payment:
- Review your current bills and slash your expenses. Yes, this can be challenging, as it requires changes in lifestyle; however, after buying your first home, you will be grateful you made this sacrifice. Some examples of slashing bills includes: cutting cable, reducing entertainment costs, cooking food at home, and becoming a mindful spender.
- Boost your income wherever possible. Whether this is taking on additional overtime or finding a part time job, the extra income can help expedite the process. Once again, when taking on additional work, remember the long-term goal: extra time and energy now can save you thousands of dollars in the future.
- Consider borrowing from your retirement fund! That’s right – if you are a first time homebuyer, you may qualify to borrow from your retirements accounts, which may mean taking up to $10,0000 out of your individual account, avoiding the 10% early withdrawal fee, and borrowing cash from your 401(k) without tax or penalty.
Now that you have saved a little more money and are ready to start looking for your next home, it is time to look at how you can save on your purchase.
- Identify and research your market. The area where you are looking to purchase can drastically affect the price point of the residential market. If you are looking in a highly sought-out area, prices may be higher. However, if you are looking in an up-and-coming area, prices may be lower. Understanding your desired neighborhood can provide you insight into the size of home you may qualify for.
- Make your homebuyer checklist: this includes identifying your “Must Haves,” “Wants” and “Do Not Needs” of your future home. By always having this list prepared during your home search, you will more easily be able to compare various homes. At the end of the day, you should not find yourself paying extra for homes that have too many features on your “Do Not Need” list. Some examples include looking at the number of bedrooms, quality of the interior and exterior of the home, HOA fees, etc.
- Identify whether you want a home that is “Ready for Renovation” or “Ready for Move-In.” If you are open to renovating a home, you may get more bang for your buck. However, a home requires work to renovate – time and energy you may not be willing to put in. Assess the pros and cons of each option and determine if you are ready to save through investing in DIY projects.
In the end, purchasing a home is a multi-step process. Working with professionals can help you save money while getting the most for your dollar. If you are interested in purchasing your first home or learning more about the real estate market, contact us and we would be happy to discuss it further. We have years of experiencing selling and purchasing homes in the Baytown area, and would be happy to help you with your next move. Contact us today and we can get started.