Buying your first home can be a very exciting and fulfilling experience. You work hard and are finally ready to hang your hat in a place of your own. While this truly is a wonderful feeling, many of us have seen how that dream can easily become a nightmare due to improper financial planning. Here are ways you can create a budget to help get you started on the right track.
Discuss Your Options With Your Bank
It’s important to know your options so you can clearly identify your starting point, which is why a trip to your bank should be your first step forward. Many banks have low-income mortgage offers and programs in place for borrowers with lower household median income levels, and many of them offer first-time homebuyers a discounted rate or even the option to not make a down payment. If you meet the criteria in any of the bank’s special programs, then you will have a better idea of what comes next. If you don’t meet that criterion, your bank can help you get on the right track to either quality for those programs or the action steps you need to take to get your finances organized.
Save Up for the Down Payment
If you are required to save for a down payment, it is important to know that a typical down payment in the United States is 5-20% of the home’s value. When you sit down with your bank, have them do a pre-approval so you can get an idea of what you can actually afford and how much you need to save so you can create your budget. Having a down payment shows lenders that you are able to budget and save money, which will increase your chances of qualifying for better rates.
To make saving a little easier, start by making a realistic goal date and breaking up your down payment by the number of months it will take to reach your goal. If you’re not sure how to add extra money to your fund, consider cutting things you can live without such as gym memberships and cable since there are plenty of free options available for exercise and entertainment. Instead of going out for lunch and buying coffees, bring your own and add what you would normally spend to your down payment fund. You can also consider starting a side hustle or taking advantage of any overtime opportunities being offered at work. There really isn’t a shortage of ideas on how you can add to your down payment without starving; you just need to get creative and consider what will work for you and your goals.
Create a Separate Down Payment Account
You want to protect yourself and your fund from the temptation of spending it on other luxuries or expenses. This is a common occurrence where people work hard and save for their down payment and then they spend it on a cruise or a new car, or an emergency comes up. Keep your down payment fund separate from your checking account and preferably in an account that is difficult to access such as a mutual fund or savings account.
Buying a new home can be a wonderful experience. It’s a time to grow and create your own space either by yourself or with your family. With proper financial planning, you will feel the pride of homeownership for many years to come.
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