Whether you’re a first-time homebuyer or you’re upgrading to a new space, buying a home is exciting. No matter what you have in mind, you want the best deal possible on your new home. While purchasing a house used to be the classic American Dream, fewer Americans are actually achieving this dream than ever before. In fact, homeownership is 8% lower amongst Millennials than Baby Boomers.
What’s the reason so many young people are skipping buying a home? While many are choosing to live in cities and avoid being tied down, others say buying a house is just too expensive today. While it’s true prices are rising in some places, buying a home is still the more affordable option in most parts of the country. There are many smart ways you can save money to afford a home.
1. Improve Your Credit Score
Once you know you want to buy a house, it’s time to get serious about your credit score. The higher your score, the more options you’ll have when it comes to your mortgage. Here are some ways to increase your credit quickly:
- Pay down credit card balances
- Stop applying for new loans or credit
- Review your credit report for errors
- Dispute any negative account information on your report
Taking these actions above will help improve lender fees and interest rates. While you can boost your score quickly if you take these steps seriously, it’s best to have a period of time to address your credit score fully.
2. Understand the Down Payment
The more you can put down on a home, the lower your mortgage rate. If possible, it’s best to aim for 10-20% down. If your payment falls under 20%, you’ll need to pay for private mortgage insurance (PMI) which is insurance for the loan itself. If you’re pursuing an FHA loan, you’ll need to purchase mortgage insurance no matter the amount you put as down payment.
Aside from the down payment, there are other expenses to consider like appraisal fees, inspection fees, and closing costs. You’ll want to include these in your overall calculations.
3. Decide How Much You Can Afford
Before you start saving, you need to determine just how much you can afford to put aside every month towards your home. You shouldn’t need to spend more than 25% of your monthly income on your mortgage. With this in mind, create a budget that works for you.
This can be simple math: divide your monthly take-home pay by 4. This number is the amount you’re able to contribute comfortably to your mortgage. Using this, you can create a price range for a home that works for you.
4. Get Serious About Saving
Saving for a home is the same as saving for anything else. You’ll need to put money aside and cut back on spending. It can take time to save up for a home, and it’s best not to rush into the process. First, create a down payment fund. This is where you’ll keep your home buying savings. You’ll want this to be a separate account from your personal spending.
Next, find ways to put extra money each month towards this payment. You might cut unnecessary spending like cable or eating out. Even small contributions will add up when it comes to saving money for your down payment.
5. Use a Real Estate Agent
Finally, when it’s time to start searching for a home, use a realtor. While more home buyers than ever are relying on the internet to find their new home, there are still a lot of benefits to buying through a realtor. An experienced real estate agent can save you both time and money. They’re skilled in negotiation and ensuring the process is as smooth as possible.
It’s easy to think you’re saving money by not using an agent, but that’s actually not the case. The buyer doesn’t pay the realtor’s commission, the seller does. This means you’re able to use the knowledge and expertise of an agent at no extra cost to you.
Buying Your Dream Home
You can afford the home of your dreams if you’re willing to put in the effort and save smartly. Buying a home is more affordable than ever, especially if you’re careful with budgeting. The key is to use all the resources at your disposal, whether that means using a real estate agent or talking with a financial advisor. Your dream home is closer than you think.