5 Ways to Save Money for your New Home
Maybe you’re looking for a way out of your 1 bedroom apartment. Maybe the family has outgrown your current home and now you’re looking to upsize. Maybe you have your own reasons for wanting to purchase a new home. Whatever the reason, if you’re not swimming in cash, you may be tapping your pockets wondering where the money will come from in order to fund your new purchase.
The biggest expenses will always be your down payment and closing costs. While you can make an offer requesting a seller’s concession (financing your closing costs into the mortgage), in a competitive market, it can make your offer a tad bit weaker. Asking for a seller’s concession has become popular over the years and usually buyers are able to purchase with a seller’s concession leaving the down payment as the biggest expense financially. That’s not including the couple hundreds of dollars for inspection and appraisal fees. Depending on the type of loan you choose to go with and qualify for, you can expect a minimum down payment ranging from 3%-20% of the purchase price.
So where do we start taking the actions to start saving for our new home? I’ll give you 5 that you can begin right away and before you know it, you’ll have enough money stashed away to make your next purchase. It may even benefit you to open a new, not-to-be-touched savings account to be designated just for your home purchase.
- Paying down credit card debt
Before you even begin to save you’ll want to make sure that you get a handle on your credit card debt. This can add strain to your debt-to-income ratio which could affect your worthiness not to mention a lower credit score would result in higher monthly payments. Does your credit have to be perfect? Absolutely not, but you should be able to at least demonstrate that your credit card debt and score are managed respectively on your mortgage application. According to a Credit Sesame Survey, about 20% of the American population is unable to obtain a mortgage due to low credit scores and poor management.
Make this your first priority! After all, a mortgage is just more debt isn’t it? Don’t send yourself into financial hell!
- Lessen your monthly expenses
Now is the time to cut back on unnecessary expenses. Do you need cable TV or can you live off of Netflix and Hulu? Do you need that new car or does your current suffice for a few more months? Do you need that next all-inclusive 9 day vacation or is a simple weekend getaway just as fun? – And please don’t give me that “you’ll save money at an all-inclusive resort because everything is free and…….blah blah blah.” I’ve told myself that and I couldn’t be further from the truth – ha! I sell to my own self sometimes.
In essence, start deciphering between necessities and luxuries. You don’t need to all of a sudden become a cheap, boring homebody, just be careful on your indulges and become as conservative as possible. Go through your current monthly expenses and see what you can cut out or lessen. You’d be surprised what you forgot you were paying for. At one point I was paying a monthly subscription for Xbox Online and I hadn’t picked up a controller in a year! What are you paying for that you really don’t need?
You’ll need to scale back on your vices as well. You’ll have to put the restaurants, bars, new shoes, and daily caramel frappuccino in the backseat for now as you head towards your savings goals. Consumers spend an average of $445 a year on alcoholic beverages, according to the Bureau of Labor Statistics. If you’re in the relationship building business, I’m pretty sure it’s a lot more than that. Instead of the restaurants, make cooking at home your routine. Try new recipes or have small cooking parties and bring the fun to you instead of you going out to get it. Ladies, I know you’ve been eyeing those pair of shoes for the longest, but you’ll have to sit on your hands in order to get ahead with your new home purchase.
- Living at home or getting a roommate
For those that are currently renting, it’s a good chance that your highest monthly expense is your living expense. Or, if you’re like most of us millennials, your student loan payments may be right up there next to rent. If that’s the case, maybe moving back in with mommy and/or daddy won’t be such a bad idea. I get it, I get it, we’re millennials and once we’ve moved out, it’s a tough pill to swallow to have to move back. Just focus on the end result – the home, your own home. Moving back in with your parents is a strategic move. For me, I stayed at home after college for a few years, saved aggressively, and although I didn’t use my savings to purchase a home, I did use my savings to quit my job and start a business at the age of 26, in the field of real estate. Talk about irony.
And if moving back in with mom and/or dad is on your “no way in hell” list, maybe getting a roommate in your current apartment might be the way for you to go. Obviously it’s a lot harder if you’re in a studio vs. a 2 bedroom, but if you’re able to lower your living expense while not feeling like you’re sacrificing to much privacy, living at home or getting a roommate are some good saving alternatives.
- Living off of half your salary, or cutting back on your IRA
You can go into an extremely aggressive saving mode with these two options. You can set up an automatic payment every paycheck that will move a certain amount of money directly to your savings account. You won’t “miss” money you won’t see on your paycheck. Out of sight out of mind and before you know it, the money adds up quickly.
For you retirement super savers out there, maybe cutting back on your IRA savings plan might aid in your home purchase. Your employer matching program will usually max out at 3% and you may already be taking advantage of your employer’s match program. Even if you offer 4% or 5%, your employer will cap their match at 3% so it may make sense in the short term to use the extra 1% or 2% that your employer is not matching to contribute towards your home savings fund.
- Pick up a second job or side gig
Now that you’ve gotten a grip on some of your expenses and spending habits, a way to add fuel to your savings account is to pick up a second job or side gig. They say an extra $1,000 a month can make all the difference – what would an extra $1,000 do for you and your goals?
Do you have a special skill? Put that skill to work as a freelancer. There’s various websites for you to market your talents such as Upwork.com, Fiverr.com, Freelancer.com, or Guru.com.
For freedom and flexibility, look for ways that you can make money from your computer or at home. There’s a plethora of creative ways to make money online.
If your diligent about your savings plans and goals you’ll be on your way to home ownership quicker than you think. Yes, you may have to take a step back, but to take three forward and these are just simple tips to get you on your way. You could also consult with your financial services professional for expert opinion on how to get yourself started on the road to your next home!