At True Homes, we often meet prospective homeowners who are struggling to save money for a home purchase while they are renting. Many first-time homebuyer tips suggest giving up the daily stop for coffee to save a few dollars here or there. Keep reading for savings tips that may result in bigger savings without sacrificing your lifestyle!
First, before you do anything else, talk with a mortgage lender about home financing options. One of the most common first-time homebuyer tips is to save 20% of your intended purchase price for a down payment. In reality, the average down payment for first time home buyers typically is much less.
A mortgage lender can share home financing options that will apply to your particular scenario. In one quick discussion (rather than hours of online searching), you may find grant programs for first-time buyers, incentives for borrowers in your profession, or special programs for your zip code. Down payment levels go as low as zero, while 3 – 3.5% options are common. One conversation could cut back on years of scrimping and saving.
Next, set up a special savings account for your home purchase funds, preferably one that will earn interest. You will likely have other savings goals at the same time you’re saving for a home – perhaps for a special trip, holiday spending or an emergency fund. A dedicated account will preserve home purchase funds for their intended purpose.
Also, when it’s time to apply for home financing, these funds will be “seasoned.” That means they will have been in the same account for a long period of time. While underwriters will require documentation for deposits made within a few months before or during the loan process, they are less likely to ask for the same with seasoned funds.
After setting up the account, go ahead and have some of each paycheck automatically deposited into it. It’s easier to save money that never hits a spending account. Start with just a few dollars if needed. Each time you use these savings tips to knock down another payment, increase the amount automatically deposited into savings. Increase the amount with each raise you get, too.
As mentioned, first time homebuyer tips and savings tips often mention cutting out discretionary spending, like morning coffee stops or eating out. While these things can be helpful, there are other areas where you may find even more significant savings without impacting your lifestyle.
Consider, for example, your insurance. If you have more than one policy, such as auto insurance and renter’s insurance, bundling the two with one provider may bring discounts. And shop around for policies least once a year. Insurance is a competitive industry, and it’s often possible to find lower rates. You might also realize savings by increasing deductibles or otherwise adjusting coverage.
Find more money by paying down credit card debt. Not only will this save money on interest payments, but it will also improve your credit score and your debt-to-income ratio, important factors in home financing.
Some options for accomplishing this include paying off cards completely, transferring high-interest balances to lower-interest or even zero-interest cards, or consolidating all credit cards into a lower interest rate loan. Be aware that opening new accounts will have a negative impact on your credit score, so do this well in advance of applying for a mortgage. Closing the old accounts may also negatively impact your credit score, so keep them open, even if there’s no balance owed.
A third source of cash is the money you may now be saving for retirement. Consider temporarily diverting some or all retirement savings toward a home instead. A home is the largest investment most Americans make, and real estate values tend to rise over time (often dramatically). It may make sense to temporarily forgo the slow-growing 401K investment to fund a home investment instead.
Carefully weigh this option before making changes, especially if it means sacrificing an employer match. And switch the monthly savings back toward retirement as soon as possible.
True Homes has seen thousands of renters successfully transition to homeownership through hard work and determination. We hope these first-time buyer tips and savings tips will help you do the same.