How To Save for a Home: A Millennial’s Guide

May 05, 2022

How To Save for a Home: A Millennial’s Guide

Is purchasing a home on your bucket list?  Believe it or not, it’s not an unachievable task for first time homebuyers.
Preparing yourself with knowledge, creating discipline, and having patience all play an important role in the process. But, before you know it, you’ll be waving goodbye to a rental and hello to your dream house.
There are numerous methods available to save money for a home. So dust off any feelings of hopelessness and get ready to run the obstacle course to homeownership.

How Much Money Do You Need To Buy a House?

Isn’t that the million-dollar question of the day? Before you start booking tours with a real estate agent or even think about saving, take a moment to reflect on what monthly payment and the total purchase price you can afford when it comes to a down payment, closing costs, and moving expenses.

Down payment: What Are Your Options?

Rewind to years past, a 20% deposit was the requirement. Consider it an insurance policy for the bank if the homeowner was to default on the mortgage.
Putting it into perspective, a home listed at $100,000 would require the buyer to bring $20,000 to the closing. The advantage to the future owner? A lower mortgage loan balance and lower payments.
Don’t let this example frighten you. Sure, you can still follow in your ancestor's footsteps with a 20% deposit. Or, you can leverage other available options that better suit your budget.
How does 3% or less sound? Using the same example, a 3% down payment equates to $3,000. Seems more affordable and appealing, right? Even more so, achievable!
Keep in mind that the down payment requirement is determined by the type of mortgage loan you qualify for. This could be a VA loan for military applicants, a conventional loan, etc.
To qualify, present your credit score, income, and the ratio of debt as these are key components in the journey of homebuying.

What Are Closing Costs?

You’ve made it through the price negotiations, qualifying for a mortgage loan, inspections, and more. Don’t let the fatigue set in yet; the closing isn’t final yet.
To seal the deal, your real estate agent and mortgage lender will communicate your final closing costs. This is the total payment you’ll need to bring with you, if any, to closing.
Closing costs are additional fees the buyer is responsible for. This includes costs for:
  • Home inspection
  • Appraisal
  • Prepaid Insurance
  • Taxes
  • And other loan-related processing fees
In some cases, the seller, mortgage lender, or the builder may agree to assume some or all of  these costs; however, as the buyer, you should expect to have an additional 3-4% of the sale price to bring to closing.

Other Moving Expenses

Everyone’s situation will be different when it comes to moving day.
If you don’t already have a truck to move your belongings or enough helping hands you may consider hiring a moving company or renting a moving truck.
Professional moving companies aren’t inexpensive. The average cost for a local move ranges from $800 to $2,150. For an out-of-state move, this can range from $2,200 to $5,700.
The price fluctuates depending on the size of the original home being moved. This determines the number of movers required for the job and the number of hours estimated to perform the work.

Tips & Tricks To Consider To Begin Savings for a Home

Create a Budget and Stick to It

What are the benefits of building a budget? A budget:
  • Puts you in control of your money
  • Gives you the lens you need to focus on your financial goals
  • Itemizes your spending, reducing surprises
  • Serves as a guide, signaling money issues before they occur
  • Tells you your financial story, answering the question: What can you afford?
There is a budget rule known as the 50/30/20 rule. Have you heard of it? If not, here is how it is interpreted:
  • Begin with your income. Expect to use 50% of it on your essentials. This would be your rent, groceries, utility bills, insurance, etc.
  • Once the necessities are covered, move to the next 30% of the remaining income. Spread this across your wants, such as dining out, going bowling, buying that outfit you have been longing to have, etc.
  • Now, the remaining 20% of income is for saving and investing. It may seem like a small amount of cash in the beginning, but depending on how it is allocated, it can increase considerably.

Saving on Auto-Pilot

One option to consider when it comes to saving is to put it on auto-pilot. You’ve heard of the saying, “out of sight, out of mind,” right? Use it to your advantage.
Create a separate savings account and keep it on standby for this tactic. This removes the temptation and ease of dipping into your savings in the event your wants overpower your needs.
Monitor your savings account frequently. Measure the balance against the goal you’ve set for yourself and assess whether or not you are on track or if you need to make modifications to your savings plan.

Reduce Your Debt, Avoid Incurring Unnecessary or New Debt

Debt is like a disease. It eats away at your net worth slowly, making saving tough. You’ll want to face your debt head-on. Don’t let it impact your financial success.
Include your debt in your budget with the intent to not only pay it off but to stop incurring new debt. As debt reduction occurs, you’ll notice a boost in your credit score.
Paying off obligations also creates a favorable debt to income ratio. This is one of many calculations lenders will look at when determining whether or not they will approve a line of credit.

Assess and Alter Your Habits

Your budget should open your eyes to the inflows and outflows of your hard-earned income. Are you shocked by where your money is going?
Here’s an example. It’s easy to get caught up in a daily routine at the coffee shop. Depending on your preferred stop, you may be spending anywhere from $3.00 to $8.00 a day on your favorite blend.
It may not appear to be much, but let’s add it up. In one month, at $3.00 a day, you are spending nearly $93.00 of your income on coffee.
Now, let us ask you this: Could you pause this habit, or break it, and put that money aside in a savings account instead? Think about the interest you could be earning on the dollar!
Take a deep dive into your daily habits and see what you may be able to improve or modify. One slight modification benefits your bank, and you’ll be one step closer to holding the key to your new home.

Now Start Saving and Prepare To Move In!

Buying a house is not a process completed on a whim. Sure, there may be a select few that can do so, but for most, a firm plan is set in place to follow.
Don’t get discouraged during the process. It takes time to save and adjust to a budget. You may need to get creative or pick up extra hours to reduce debt too.
You now have the necessary tools and the knowledge to move forward on your journey. It’s time to pack up your belongings and ride the road to homeownership.
LifeGoal Investments is here to help you understand the importance of investing and is ready to help you strategically build a financial portfolio so that you can focus on today and be prepared for the future.