Getting your first house is always an exciting moment. But it is a major undertaking. To continue living comfortably after getting your home, you need to start saving up. By setting strategic goals, you can better prepare your finances.
Pay Off Your Debts
Generally, housing should never be more than a third of your income. But if you have debt like credit cards or student loans, you might be limited in the amount you can put toward your mortgage. If you can, try to get rid of some of your existing debt before going into more. That can help to alleviate some of the pressure. It might also get you a better mortgage rate. If you have student loans, consider refinancing them and getting a lower rate. Using a student loan calculator will help you see your potential savings. That might let you put more toward paying off other loans. Once you have paid down some of your debt, you might have a lot more money freed up, which will allow you to save even more.
Decide on a Budget
Before you start house hunting, think about what you can afford. What a lender says you can afford may be different than you really can. Calculate the total costs, including mortgage, insurance, and property taxes. That can add quite a bit to the total mortgage. Once you figure out what you can afford, you can determine how much you’ll need to have initially. It’s best to have a 20 percent down payment so you don’t need to get private mortgage insurance. But if you have a good credit score and live in a more expensive area, you can likely still get a good loan with a 10 percent down payment.
Start Paying Your Future Mortgage
Consider living like you are already paying the new mortgage. Put the difference between your rent and potential future mortgage into a savings account. For example, if you currently spend $900 a month on rent and anticipate a monthly mortgage payment of $1,500, put an extra $600 in your savings account after paying your rent. This habit will help you get used to paying a bigger amount each month. Plus, you’ll be saving toward your future home. Many people wait until the end before putting money into savings. But that’s the worst method because you might find there isn’t anything left over. Give money to yourself instead of letting it get frittered away on this and that. While it might take some adjusting, you’ll likely get used to it after a while.
Start Reducing Your Expenses
If you feel like you are just barely getting by, consider reducing your expenses. Start with a 10 percent reduction for each category. For instance, if you spend $500 a month on groceries, look for ways to reduce it from $500 to $450. The difference isn’t huge, making it doable, but it will add up across your expenses. Eventually, you will have enough saved for your down payment. Be patient with the process. It’s more of a marathon than a sprint.