When you buy a home, you are investing in yourself and your future. They create financial stability, equity and experience. You have a place to call yourself and you can customize the space just the way you want. However, you may be wondering how you can get to this point – that's why saving is so important.
Owning a home comes with some upfront costs – mostly a down payment. Find out how much to budget with a home loan affordability calculator and find out how you can save the amount you need. After all, the best way to save for a home is to formulate one budget This will help you work towards your home savings goals step by step. Before long, you'll be turning the key and stepping into a home that you love.
Step 1: calculate your deposit and schedule
When figuring out how to save for a home, you may already have a savings goal and deadline in mind. For example, you may want to save 20 percent on your home loan costs by the end of the year. When you haven't thought about it that much, sit down and key in the numbers. Ask yourself the following questions:
What are your ideal home costs?
What percentage would you like to contribute as a deposit?
What are your ideal monthly payments?
When do you want to buy your home?
How long do you want your term mortgage to be?
By asking yourself these questions, you will have a realistic budget, schedule, and savings goal to work towards. For example, let's say you want to buy a $ 250,000 home with a 20 percent down payment and a 30 year term. You would need to save $ 50,000 as a deposit. At a rate of 3.5 percent, your monthly payments would be $ 898.
Step 2: budget for the additional expenses
As with a new rental, your home will incur fees, taxes, and utilities that must be budgeted for. Homeowner insurance, closing costs, and property taxes are some examples of cash expenses. Not to mention the cost of utilities, repairs, renovations, and furniture. Here are some more expenses you may need to save up for:
Valuation costs: Appraisals assess the value of the home and are usually ordered by your mortgage lender. They can cost anywhere from $ 312 to $ 405 for a single family home.
Home inspection: A home inspection typically costs $ 279 to $ 399 for a single family home. Prices vary based on what you need to review and how thorough you want the report to be. For example, if you want an expert to study your foundation, there is likely to be an additional cost.
Brokerage fees: In some states, the agency fee is 5.45 percent of the purchase price of the home. Depending on the market, the seller may pay your brokerage fee. In other places, it may be more common to hire a lawyer to review your sales contract, which is usually cheaper than a broker.
Valuation and closing costs: Appraisals assess the value of the home and are usually ordered by your mortgage lender. They can cost anywhere from $ 300 to $ 400 for a single family home.
Step 3: Maximize your savings
Saving for a new home is easier said than done. To stay on the right track, start by creating a savings account that has a high return if possible. Then review your monthly savings goal to set up auto contributions. By setting up automatic savings payments, you can treat that payment as a regular monthly expense.
Not only spend more, but also spend less. Assess your budget to see which areas you could save or live without. For example, setting up your own workout studio at home can save you $ 200 a month on a fitness class membership.
Step 4: work hard for a raise
One of the best ways to increase your savings is to increase your earnings. If you already have a job you love, invest extra time and effort to earn a raise. Learning new skills by attending in-person or virtual training seminars or learning a new language can increase your potential to earn money. Not only could you land a raise, but you could add those skills to your resume as well.
If you put in the extra effort, sometimes you don't always get a raise, and that's fine! If a raise is not an option, consider other options. Find out which industry suits you and your skills and apply. You may find your dream job along with your desired salary.
Step 5: create more streams of income
Setting up different streams of income could help your home savings budget. When one source of income dries up unexpectedly, it helps to have other sources to fill the void. You don't have to worry about the sudden change in income when you pay your monthly mortgage.
For example, if you create an online course as a passive income project, you might get only $ 5 this month. If traffic increases, your monthly income could exceed your monthly income. There are several ways to build a rich financial portfolio:
Create an online course: Write about something you are passionate about and share your skills online. Sell your digital products on Etsy or Shopify for extra income.
Expand a YouTube channel: Start a YouTube Channel and Share Your Skills to Help Others in Your Specialized Industry. For example, "How to Start a YouTube Channel" could be a success in itself.
Invest in low risk assets: From CDs to Money Market Funds, there are a few types of investments that can help you grow your money with low risk.
Step 6: Pay Off Your Biggest Debt
Before taking on more debt like a mortgage, it is important that you clear your loan usage. Loan Utilization is the percentage of the available loan you have opened compared to what you have used. If you have $ 200 in debt but there is $ 1,000 available on your credit card, you're only using 20 percent of your loan usage. A higher credit load can potentially affect your credit score over time. Not only can paying off debt feel satisfying, it can also increase your credit score and prepare you for that next big purchase.
Create a plan of action to pay off your debt. Write down all of your debt accounts, how much you still owe and their due dates. From there, increase your payments for your smallest debts. Once you've paid off your smallest debt in full, you may feel more motivated to repay your next debt account. Keep up with these good habits when you take over your mortgage account.
Step 7: don't be afraid to ask for help
Don't hesitate to ask for help, whether you're traveling at home or need help adjusting your budget. If you're looking to figure out what your budget should be, look to budgeting apps like Mint to help build a successful financial plan.
If you are curious about additional mortgage costs, your budget, or your investment opportunities, consult a trusted professional or use government resources. Not only can they help you prepare for your next big step, but they can also help you and your finances in the long run.
Step 8: Store Your Savings in a High Returning Savings Account
While you may have the perfect budget and savings goal, it is time that every dollar counts. Before adding them to your account, find out about different savings accounts and their monthly returns. The higher the return, the more your savings can increase as long as your account is open.
In September 2020, the national average interest rate for savings accounts was capped at 0.8 percent. If you deposit just $ 100 into a high-yield savings account with an APY of 0.8 percent, you could make $ 80 off your investment over the course of the year. This will help you save extra money by simply depositing your money into a savings account.
First, set a savings goal that matches your estimated down payments and monthly mortgage payments. Then add your contributions to a high-yield savings account to keep your money growing over time.
Don't forget to budget for additional mortgage costs like valuation costs, home inspections, brokerage fees, or closing costs. Note that your monthly utilities and fees may also be more expensive than your current living situation.
Prepare for the additional costs by increasing your earning potential and optimizing additional sources of income.
Free up your loan use by paying off as much debt as you can before buying a home. Keep these good habits throughout the life of your mortgage.
When you buy a home, you are building a piggy bank for your future. Every month when you pay your mortgage, you pay part of it to yourself because you own the home. Instead of paying the rent to someone else, you reap your own investment when you sell. Most importantly, you have a place that is truly your own.