After years of renting, it’s time to buy your first home. Congratulations! But it’s not just about finding the right house; it’s also about buying a home in the right location. Which is your ideal state? Neighborhood? Where do you want to settle to raise your family? Budget for more than just a house; budget for where you want to live.
You’ve made the big decision to buy your first home, so don’t settle for living just anywhere. It’s tempting to pick a cheaper location, but can you envision living there for the long run? Or will you need to move shortly and start the process all over again?
Keep in mind what is best for you or your family, and aim to buy a home where you want to live. How? Continue reading to learn how to budget to buy your first home.
1. Build a Budget Beyond the Down Payment
Buying a home is more than just saving for a down payment. Set yourself up for success by building into your budget room for the down payment, closing costs, mortgage payments, and additional costs of owning a home. Calculate expected expenses, such as utilities, repairs, and HOA payments, and account for unexpected costs as well so you can make payments worry-free each month.
Saving money starts with a plan, and the foundation of this plan is setting a clear budget. Track your money so you know how much you earn and how much you spend. Take the time to plan your spending and minimize impulse purchases. Budget for your bills as well as eating out and entertainment. It will help you to know where your money is going and to be intentional in your saving and spending.
Make note of your income and living costs. How much do you spend on rent? What about groceries, gas and car maintenance, utilities, and loans? Next, look at how much you spend on nonessentials, such as movies, eating out, special events, and so on.
Once you see your spending habits, make categories and set realistic budgets for each category. Pick specific amounts for these categories and take care to stick to them. Remember to include a new house category so you can start saving to buy your first home.
2. Look for Opportunities to Cut Back
Keep in mind this simple rule: save more than you spend. This may be obvious, but it’s hard to do without a clear plan. However, equipped with a definite budget, you can start to identify areas where you can cut back. Ask yourself where you can afford to downsize.
Downsizing is one of the fastest ways to save money. Practice minimalism while you are saving. Focus on spending money on the essentials and cut back on some non-essentials. What can you live without for a short while? Can you eat out less? Make coffee at home instead of grabbing it on the go? Move somewhere cheaper while you save? Start saving now, and move into an exciting future.
3. Reduce Your Debt
Don’t let debt stand in the way of buying your first home. Decreasing debt and increasing savings can help you qualify for better interest rates and terms. Lenders look to your debt-to-income (DTI) ratio when determining what you qualify for. Before applying for a mortgage, make a plan to reduce debt. Start directing money toward paying off credit cards and existing loans.
Additionally, commit to not taking on any new debt. Try not to open more credit cards or take on new auto or student loans. If you need to add debt, you will also need to add income. Remember, both your debt and income affect your DTI, which affects your mortgage rates. Limit debt, save money, and attract better rates.
4. Increase Your Income
Look for options to increase your income. There are many ways to make more money, and it doesn’t always mean taking on another job. How can you supplement your income? Can you ask for a raise within your current job? Is it time to apply for a new job with a better salary? Or is there a side hustle you can fit into your schedule? Research what’s out there and come up with something that fits well with your lifestyle, interests, or skills.
For instance, if you have an extra bedroom in your apartment, consider finding a roommate or list it online as a vacation rental. Some apps even allow you to rent out your parking space. Find creative solutions and increase your income.
5. Partner With a Good Lender
Shop around for a lender with great interest rates and flexible terms for first-time homebuyers. Not all lenders are created equal, and the right lender will save you money. A good lender will help make saving easier with lower interest rates and low- or no-down-payment options.
If you are looking to buy your first home, coming up with the traditional 20 percent down payment may not be possible. Fortunately, there are lenders who no longer require 20 percent down to qualify for a conventional home loan. Look for zero-down-payment and low-down-payment loan programs.
Choose a lender with low interest rates. Lower rates make your dollars go further. You can have more to buy your first home in a place you love and in the style you want. Typically, credit unions offer lower rates than banks and online lenders. They also have other incentives as well and excel in customer service.
Do you live in Washington State? Get moving with great rates and connect with a Home Loan Guide at Solarity Credit Union. They are helping put first-time buyers in homes with zero-down and low-down-payment loan options. Homeownership might be closer than you think. Get in touch today and achieve your homeownership goals.