Saving money to buy your first home is both exciting and a little scary for many people. Whether you are just considering purchasing a home or you have already started looking at them, now is the time to start getting financially prepared to own your first home. If you're unsure how to get started saving for a home, we'd like to offer three tips.
Establish a Budget Before You Buy Your First Home
One of the most important things you can do before you buy your first home is establish a budget. Start with the expenses that are the same every month, such as rent, cell phone bills, car payments, and other bills. Then include other necessary expenses, such as food, gasoline, and bills that may not be the same every month. Even for necessary expenses, such as food, it is a good idea to establish a monthly limit.
Once you have included all your monthly necessities, create categories for other expenses. These categories may be things such as "fun," "savings," "clothing allowance," and "emergency." It is important to include an "emergency" category or to at least have a "savings" category. This is for your unexpected expenses, such as a flat tire or a medical emergency.
One important thing to remember is that your budget needs to be realistic. While you can reevaluate it monthly or whenever you feel that it's not working for you, you don't want to have to borrow money from one category to cover expenses in another area.
One thing that some people have found helpful for unnecessary expenses is to have envelopes with cash in them for those categories. Once that money had run out, you cannot spend more in that category until the next month. Spending in cash rather than using a debit card may help you physically see the money better.
Reevaluate Extra Expenses
Once you have established your budget, try to stick to that budget for at least three or four months. Record how you are spending your money and if any categories have had to be adjusted. Now, it is time to look at your budget and see if there are any areas where you are spending money excessively.
As you are saving money to buy your first home, it is important to eliminate or at least reduce any unnecessary expenses. In this way, you are going to tighten your budget so you can put more money into your "savings" category. For example, if you're going out to eat four or five times a week, you might be able to save money by cooking at home and freezing your leftovers to use on a busy night.
Put Aside Money
Now is a good time to financially pretend like you are already in the process of buying your home. The first step is to determine how much you plan to pay for house payments each month. If this is roughly the same as you are currently paying in rent, great. If your anticipated house payments are higher than you are currently paying in rent, put aside the extra money. This will help you prepare for when you actually buy your first home.
Of course, as a homeowner, you may have other expenses that your landlord currently covers. This may include things such as water, trash, or other utilities. When putting aside money, it is a good idea to include this money as well.
If you have already started looking at homes, you may want to ask a real estate agent or people who live in your desired area the typical cost of utilities in this area. This will help you determine if you need to put aside even more money.
The money for house payments and other anticipated expenses should be put into a savings account, which can be used as part of your down payment. Once you have put aside this money for a few months, you can determine if you can realistically afford to buy a home now. If you've found that you can't afford it now, you may need to look at less expensive homes or wait a little longer to buy one