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Welcome back to the saving series! Last week I shared some foundational tips on how to save money to reach ANY goal! The tips I shared in that post are great rules of thumb no matter WHAT your savings goal is. In the coming weeks, I’ll be sharing specific tips for saving money on all of life’s milestones and major events. To kick things off, I’m starting with the home! We recently bought our first home and the entire process taught me a lot. In this post you’ll learn tips specifically for saving towards your first home purchase, how to know when is the right time to buy a home, hidden fees and ways to save through the home buying process to put yourself in the best financial position possible.
How To Save Money For Your First Home Purchase
When it comes to saving money to purchase a home, timing plays a huge role in figuring out if you’ll actually be on target with your projected savings goals. So let’s consider the following when it comes to timing and purchasing a home:
When is the right time to buy your first home?
You’ll want to make sure you are out of “bad” debt (i.e. credit card debt) and your credit score is in good standing, since that can impact your mortgage rate. I’d recommend reaching out to the professionals at Lexington Law firm for your free credit repair consultation. Lexington Law is a leader in credit repair with over 27 years of experience in the space. They work with their clients on disputing items on their credit report that may be unfair, inaccurate, and/or unverified. This way your credit report will be as fair and accurate as possible when mortgage lenders go to pull it. Get your free credit repair consultation here.
How long does the home buying process take?
It varies. Personally, I’d recommend going to open houses at least every other month, once you decide you’ll want to buy a house; yes, even if you don’t plan on purchasing for another five years. This is going to give you invaluable insight into the market in your area. You’ll start to notice trends, get a better understanding of interest rates and what’s available, and it will keep you motivated to reach your savings goals.
My husband and I did this over the last seven years – our actual goal was to purchase in 2020 because we thought the dip in the our local housing market would be best for us then; with rising interest rates we panicked and took the search more seriously in 2018 but the only things available were deeply overpriced for what they were. After that we decided to drop the serious search and go back to having fun.
Low and behold us stumbling into a dream home in January 2019 when I was 38 weeks pregnant, paired with a random realtor because we only intended to go look at the house for design inspo and motivation and walked out ready to put an offer in. Everyone was surprised at how quick and sudden it was, but we felt like we’d been in this process for years. Once we put in the offer things moved quickly, fortunately we were in line with the sellers for closing time and we were able to choose a date between 30-60 days that was optimal for our lease ending and saving on the first mortgage payment.
In the first post in the savings series, I broke down a super simple standard savings formula. Go back and read that if you haven’t yet. The following tips are going to allow you to refine that formula even more and ensure you’re looking at the big picture when it comes to saving for your home purchase.
Figure out your monthly post-home ownership numbers:
A lot of people may have heard that 30% is the “magic” number when it comes to budgeting for your monthly home expenses. Lexington Law suggests you may want to avoid the “30% rule” and lower that number. Personally, I’ve always looked to cap my home expenses to 25% of my take home pay. When I say “home expenses” I mean your mortgage, insurance, an HOA, annual taxes (if they are separate from your mortgage), and utilities.
Just because you get approved for a mortgage, doesn’t mean you should take it
My husband and I put down well over the standard 20% on the purchase of our home. By those numbers, we could’ve “afforded” a much bigger and more expensive home, and just taken out a larger mortgage. However, we knew we’d want to maintain a certain monthly cost of living, and that we wanted to have money set aside for renovations and furniture. So even though we could’ve been approved for a larger mortgage, we chose to live below our means.
What happens if you plan on putting less than 20% down on your home?
Be prepared for Private Mortgage Insurance (PMI). It’s a fee typically added to your monthly mortgage payment if you put less than 20% down on your home.
What other fees should I be prepared for when buying a home?
Before you’ll get approved for your mortgage, you’ll have to get your home appraised and inspected. Set aside a few hundred dollars for each of these through the closing process. Speaking of closing, you’ll want to set aside closing costs. These vary greatly from state to state on who is responsible for what and for how much, so do you research. You’ll also want to take into account potential HOA fees, and utility hookup or start up fees, and property taxes in your target “saving number” if you haven’t already.
What will furniture and renovations cost you?
You don’t want to buy the biggest house on the block only to hate the interior or have no money left to buy any furniture. When considering your total home purchasing price, think about building in a cushion to your numbers to not only buy a house, but make some immediate improvements that will make a house a home. After doing the inspection, we actually diverted a portion of our down payment back to us, and took out a slightly larger mortgage so we could fix some larger renovations that came up in the inspection.
Other tips and ways to save and reach your home purchasing goals:
Don’t close old credit card accounts or open new ones
A hard inquiry can drop your credit score by as much as 100 points if you’re in the excellent range! Hard inquiries stick on your credit report for two years too. So as you get closer to your target home purchasing timeline, you’ll want to make sure your credit is not only in good standing – but stays in good standing! If you close an old credit card or apply to open new ones you risk dropping that good standing.
But not too early since it acts as a hard inquiry on your credit score. Like I mentioned earlier, my husband and I were going to open houses for seven years! In 2018, when we took house hunting “seriously” for a couple months, we actually decided against getting preapproved; despite everyone urging us to do so. Based on the inventory, our guts told us we’d be purchasing closer to 2020 like we planned, and the pre-approval is only good for a few months typically; meaning we’d likely have to get pre-approved again down the road.
The pre-approval process can happen in just a few hours; so unless you’re in an extremely hot market, and know you are purchasing a home in the next few months, hold off. Again, this is why it’s important to make sure you’ve connected with professionals like those at Lexington Law to ensure your credit report is accurate through the home buying process. Click here to get your free credit repair consultation today.
Saving on home decor or renovations once you buy…
Find cost effective ways to make improvements so you can either feel at home in your new purchase. You’d be amazing at what a fresh coat of paint can do to change the entire feel of a space, and it’s a cheap fix! Instead of rushing to do a renovation to open up a space, stay on top of clutter and consider placing mirrors on the walls. Mirrors can reflect light and make the space feel brighter and more open.
For more on the home buying process, Lexington Law put together this helpful post that walks you through every step of the home buying process.