Are you thinking about buying your first home (or your first rental home?!)? I remember when I got out of college. The job market was a mess, homes were way too expensive, and my student debt was too high. My husband was just starting school and we thought the dream of owning our own home was too far out of our reach. It turns out that with these tips and a little luck, we were able to save for a home!
Saving for a home does not have to hurt. These tips can help you get there.
Saving for That First Home
Make big changes, go big or you won’t go home (pun intended!)
One of the best decisions I could have made was moving back in with my parents. It was not easy, I just got married and I had a MUCH longer commute to my job. But the rewards were immense. We were able to save a ton more towards a home, since I was not paying $1,200/month in rent. I live in a college town and rental rates are really high because of it.
I estimate that we were able to save about $10,000.00 just from making this huge life change.
If you cannot move home, can you rent a room instead of a whole apartment? Can you find a group to spread out the cost of living among the group? If you are renting a larger apartment can you downsize?
If you want to save for a home, making a big change can really get you on the right track.
Set up a budget
How will you know what you have to save if you do not have a budget in place? I get it, a budget is not sexy or fun, but please do not tune out! It is the basis of getting to your goal and in my humble opinion, it is the most important one.
If you are not sure where to start, check out my Budget 101 Post. Another excellent post to help keep your expenses and therefore your budget inline is my post on Bill Tracking.
Open a savings account just for this purpose
This one is kind of a no brainer. You have a goal. You need to set money aside to meet that goal. Stash it somewhere where it is separate from your normal accounts. Most financial advisers recommend keeping the money in a money market account (MMA) which pays higher interest that normal deposit accounts (DDA). Additionally, rates tend are better for such accounts from online financial institutions (FIs) or even your local credit union may offer a great rate. Do not invest the money into something risky (i.e. stock market) as you could potentially lose the money you are trying to save. We set up an account with an online bank.
If you must invest in the stock market, because this goal is more than a few years out, I would highly recommend an index fund. They are low cost and do not need to be actively managed. You can even do it yourself through an app like Stash, Check out my post on Micro-investing Apps to learn more.
Start as soon as possible
Let’s face it, a down payment for a home in some parts of the country is significantly more than others.
For example in the area I live in homes average $150,000 – $300,000. The standard down-payment is 20% on a conventional mortgage. That is between $30,000 – $60,000!!
Obviously, this would be very difficult to save in one year. The smart play is to break it up over several years. Ideally between 3 – 6 years if you are saving $10,000/year.
If you can, get a second job. Use all the money you make from it to save from your down payment. Make it something that is nothing like your day job, but you have an interest in. Like if you work in an office all day, but are interested in gardening maybe you would like a retail job at Lowes.
If a second formal job is out of the option. Try something more non-traditional. You could sell something that you make at the office, on eBay, or Etsy.
If that is still not possible, then think about joining things that save you money. For example:
- Joining Ibotta to save money on groceries
- Joining Swagbucks to get gift cards to cover your holiday costs
- Joining Branded Surveys for Amazon gift cards or just plain cash!
- Selling something on eBay that you no longer need
The point is when saving for a home you need to find an extra stream of income, whether it is passive or not.
Use your IRA
This tip I wish I had known about, because it would have come in handy! I did not do this but you can use retirement savings on your FIRST home purchase. Read more about the rules in this article from Kiplinger’s. Please note that it may make sense to consult a financial professional or tax accountant, there are penalties associated with not following the rules set up with IRAs for early withdrawal.
Hopefully with these tips you will be able to reach your goal of saving for a home.