How to Prepare / Save Money to Buy your First Home

Buying a home seems scary. For some, it might seem unattainable. However, homeownership is possible for everyone if you set your mind to it and stick to a plan. Moving from “renter” to “homeowner” is one of the best financial decisions you can make for yourself, your future self, and your future family. Here are some general, simple tips to help you plan your first home purchase.

Better Your Credit Score

First things first, you need to keep track of your credit score. If you don’t have a credit card yet, get one!!! Once you have a credit card, don't spend more than 30% of your monthly limit. So if your monthly credit limit is $5000, try not to put more than $1500 on it. Always pay on time, and in full, every single month. Build up that credit score as much as you can!

*Pro-tip, get a credit card that allows you to earn travel points!

Determine the Prices of Homes in your Desired Area

Next, you’ll need to go on zillow.com (or contact me!) to see what homes are selling for in an area that you would want to live in. Remember, your first home will NOT necessarily be your forever home, and it will definitely not be perfect, so be realistic with this search.

Determining Down Payment and Closing Costs

Then, break down the numbers to see exactly how much cash you need to buy that home. If you are active/retired military using a VA loan, you don’t need a down payment! If you’ll be using a conventional loan, you can put as little as 3% down. If you’re using an FHA loan, you can put as little as 3.5% down.

Plus, closing costs will cost you anywhere from 3-6% of the loan.

Creating a Budget

So let’s say you want to live in an area where the average home costs $350,000, and your goal is to buy a home in 3 years. Assuming you’ll be using a conventional loan, you can put as little as 3% as a down payment, which is $10,500. You also need to save up for closing costs, which is usually around 4% of the loan amount, so $13,580 (home price - down payment = loan amount).

In total, you will need at least $24,080. I always recommend rounding up to play it safe. So in this case, you would need to save about $700 every month for 3 years.

Determining Monthly Payments

Remember, you’ll also need to make sure you can afford the monthly payments on the house once you buy it. Use a mortgage calculator, or talk to a lender, to see how much a monthly mortgage payment will be on a house in that price range. To determine what you can afford, I like to use the 30% Rule: multiply your monthly income by 0.3. Your monthly mortgage should be no more than that number!

In summary, writing it all out and looking at the actual numbers is a really good way to get perspective and keep yourself on track. You might realize that you're a lot closer to buying a home than you thought! Or...it might be a reality check, and you might realize you need to be better with your money. You could always talk to a financial advisor or a money coach to help you stay on track.

Also remember that in 3 years time, things can change. Home prices will be a little higher, interest rates will hopefully be lower, and the overall market could be completely different, so it’s always a good idea to save extra money than you think!

If you would like to get started on the home buying process (even if its 3+ years away) feel free to contact me with any questions or advice, or to be connected with local lenders or a money coach!