Buying a home is a huge financial responsibility, and coming up with the cash for a down payment requires serious planning. This is especially true if you’re already contributing a sizable chunk of each paycheck to retirement savings. Home protection plans should be included in your budgeting as a means to save you from costly repairs around the house.
Budgeting is the first step in setting aside money for your house. But it may not be enough.
1. You’ll be able to buy a bigger home
Homeownership comes with new financial responsibilities, but with a little planning and a lot of discipline, it’s definitely doable.
One of the most important things to do when buying a house is saving up enough money for a down payment. Depending on your lender and loan program, this can be anywhere from $0 to 20% of the purchase price.
Another way to save for a down payment is by putting aside a percentage of your paycheck into a savings account or setting up automatic transfers through your bank. Aside from your regular income, you can also tuck away tax refunds or bonuses from work and put them toward your homeownership goals.
It might sound like a pain to set aside extra money each month, but once you see your home-buying goal come into fruition, it’ll feel like you earned it. And if saving for a down payment is a little too challenging, you can always start investing to grow your savings even faster.
2. You’ll be able to save for emergencies
Homeownership is a big commitment that can make people nervous. Many Americans have concerns about the cost and the impact on their lifestyle and relationships. If you know homeownership is on your horizon, it’s smart to start planning ahead by saving money.
Evaluate your expenses and determine how much you can realistically save each month. If saving a set amount out of every paycheck is a challenge, consider an automated app like Digit or Acorns. These apps can automatically pull a small amount of your money from each purchase and deposit it into an investment account.
If you have a lot of debt, prioritize paying it off before allocating additional income to savings. This will help you save more by eliminating high-interest payments and freeing up funds to put toward your future house. Then you can stop worrying about whether or not you’ll be able to pay for unexpected expenses. That peace of mind is worth the effort.
3. You’ll be able to make home improvements
Home improvement projects are a huge part of owning your own home, and it’s
important to save up before tackling these big projects. This will ensure you have the money to complete the project and won’t be stuck with the unexpected costs that come with putting it off, such as a broken water heater or moldy wall.
Even small home improvements can add up to real savings over time. For example, replacing your toilet flapper valve can reduce water waste by up to 180 gallons per week, and this simple fix costs less than $20. Insulating your hot water tank and re-caulking around windows can cut heating and cooling bills by up to 10%.
It’s also worth setting aside a budget for general maintenance and repairs. It’s recommended to set aside about 2% of your home and land value each year, and this can be divided into monthly savings amounts. This will help you ensure you have the money to pay for a leaky faucet or ant infestation.
4. You’ll be able to pay off your mortgage faster
Paying off a mortgage early can save you money on interest payments and let you build equity faster. This can help you avoid the debt trap of a 30-year mortgage and give you more financial flexibility.
However, it can be challenging to amass thousands of dollars for a down payment when you’re already spending so much on housing and other living costs. If you’re already saving a big chunk of your income each month in a retirement account like a 401(k) or IRA, consider temporarily diverting those funds to your home savings to speed up the process.
Also, try cutting your expenses wherever possible and using apps that can help you save automatically. For example, bringing lunch to work instead of eating out can save you hundreds a month that could go toward your down payment. And if you’re ever able to come into a large sum of cash, such as an inheritance or a windfall, make it a point to put the money toward your mortgage principal.