4 minute read
Saving for a first home is not for the faint of heart. In 2018, the median purchase price of a home was $250,000, with 33 percent of buyers being first-time home buyers, stated by the National Association of Realtors (NAR). For first-time home buyers, a purchase of this extent can seem like a daunting task. Where do you even begin? To help you get started, we’ve got three tips when it comes to saving for your first home.
1. Do your research.
You might think saving money for your future home is the very first step. But in order to save for buying a home, it helps to know the amount you’re saving for – Enter, research. Get the lay of the land by finding out where you want to live, schools in the neighborhood (if kids are a factor) and the average cost of homes in your area. For example, research by Florida Realtors shows Florida median home sales increased in price by 6.3% since 2017.
Research what your options are for down payments; this last one is a big one.
There are numerous down payment programs out there. For example, there’s the VA loan for veterans, which does not require any down payment. And then there’s the first-time homebuyers option of putting down as little as 3.5% through the Federal Housing Administration (FHA). A down payment of this little can seem tempting, but there are cons, a major one being you’ll have to buy mortgage insurance, which means higher monthly fees. If you put down a higher down payment, you’ll have lower monthly payments and most likely a lower mortgage interest rate.
While the median down payment in 2018 was 13%, shown by NAR, many experts still recommend putting at least 20% down. Plus, a downpayment of 20% or more means no mortgage insurance (hence the lower monthly fee).
Remember the 2008 housing crisis? History has a way of repeating itself, so just because the option of buying is there, doesn’t mean you have to take it. If buying a home is a financial stretch for you and you still decide to move forward with the purchase, be prepared to assume some major risk.
It also brings up the question to ask yourself, should I really be purchasing a home if I can’t afford a down payment? Which brings us to our next step.
2. Be honest with yourself.
It’s tempting to be tired of paying rent and feel pressure to purchase property of your own. But taking on a mortgage and purchasing a home is not the same as signing a rental agreement – Home buying includes big costs, presumably for the long-haul, that you need to be able to pay. Having an honest conversation with yourself and / or partner is an important step easily overlooked in the home-buying game. Plus keep in mind there are multiple fees when buying a home, so you’re looking at more than mortgage payments.
You can also consider alternative options. Airbnb is said to start a new program in 2019, called Backyard, which will enable people to rent their adaptable homes on a more long-term basis. So having more of a “home” without the debt that comes with it, might be on your horizon.
3. Start saving for your down payment.
Once you have an idea on your price range for a home, it’s time to start setting your money aside. If saving is proving tricky for you, then maybe it means moving to a different area with lower home costs and making a longer commute to work. Afterall, NAR’s research shows that just over half of 2018 homebuyers bought in a suburban area.
Another way to set money aside is by making a list (an honest one) of your total expenses. Include everything from groceries, to rent and bills, car payments, to more voluntary spending items like eating at restaurants or going to shows. Then get a bank account with your future home’s name on it. Meaning, you cannot touch that money unless it’s for a down payment.
Want to learn more about how you can maximize your home savings? Contact us.