If you’re like many Americans, a home will be the single largest purchase you’ll ever make in your lifetime. As a result, it might seem as though the prospect of being able to afford a new home that’s tailor-made for your every desire is way too far off for you to even think about right now. It’s important to remember, however, that you probably won’t be paying for your new home all at once, so you don’t have to work on saving your money up all at once, either.
So how do you get there without landing a huge windfall of funds? Here are five things you can do right now to put you on the right track towards homeownership.
1. Set a Well-Defined Goal
One of the best ways to get on the right path to saving for a new home is by deciding what it is you’re trying to do.
Get specific. Don’t just set a goal of being able to buy a house — that leaves it too open-ended and doesn’t offer any real direction for this undertaking. Think about what kind of home you’d like to own or build, where you might want to live, what kind of features it might have, etc. Don’t worry, your goal can change as you progress and as things in your life change, but it’s so important to have a well-defined goal in place as a starting point.
Oh, and as a bonus, shopping around and figuring out what you want to save for is a fun experience.
2. Build Out a Reasonable Savings Plan
Once you have something in mind that you want to start saving for, you’ll be able to better understand how much it might cost you when you’re ready to buy. Then, you can put together a reasonable savings plan around that number so that you can figure out how long it’ll take you to get there.
We say “reasonable” here because there’s nothing worse than overestimating how quickly you can save up for something only to find out that you’ve overextended yourself. Take a hard look at your expenses and decide where you can cut back or do more to help you get to your goal when you want to.
3. Keep a Written Record of Expenses and Income
Today is a great day to create a budget if you haven’t already. Whether you use pen and paper, a spreadsheet application or one of the many budgeting apps available, having a written record of how much money you expect to have in your bank account at the end of the day is an essential step in accomplishing your goal of owning a new home.
Keep track of everything you spend and earn so that you can ensure you stay on track with your savings plan. And don’t worry if things change along the way — an unexpected expense here or there or, even better, an unexpected raise — this is just about holding yourself accountable as you work towards something bigger, not being able to predict the future.
4. Research Financial Assistance Options
If you’re buying a new home for the first time or don’t think you’ll be able to afford a down payment, you’ll want to explore some of the financial assistance options available to you because that will have an impact on how much you’ll want to plan to save.
FHA loans are a common choice for first-time homebuyers. These types of loans are backed by the US Federal Housing Administration, and they make it possible for many people to purchase a home when they would otherwise be unable to due to income restrictions or limited savings capabilities. It’s important to note that these types of loans often carry the requirement of mortgage insurance, so that’s something to consider in your budget.
Another form of financial assistance worth considering is the VA loan, which is reserved for veterans and active service members or their spouses. These loans allow for lower closing costs and limit or eliminate the mortgage insurance often required for most financially assisted loans.
Want to learn more about FHA loans and VA loans? Check out our recent blog post about these loan types for additional details.