When the Federal Reserve dropped interest rates in 2020, the real estate market became flooded with new buyers looking to take advantage of low rates to lock in a mortgage. While interest rates have increased since that time, a large number of buyers still enter the market on a daily basis. If you're feeling left out and believe that buying a home is right for you, your main goal should be to increase your savings to the point you can afford your first home. Here are some tips on how to save for your first home.
Identify Your Budget
Before you start saving money, you should first identify your budget. Knowing the amount of money you must save may give you the structure you need to set aside a certain amount in savings every month. Determine how much you're able to afford when buying a home, which can be done with a mortgage affordability calculator.
While a down payment of 20% will allow you to avoid private mortgage insurance, it's possible to purchase a home with a down payment of as little as 3-5%. Every lender and lending program has different requirements. You should also take closing costs and moving costs into account when calculating your budget.
Reduce Your Expenses
Once you've set a budget, you can then work on reducing your monthly expenses. Let's say that you currently have three subscriptions to services like Netflix and HBO Max. If you can excise two of these subscriptions, you'll start saving a small amount of money every month. To effectively reduce expenses, list every expense you currently have. Anything you don't need at the moment could be removed from your monthly expenses.
Pay Down the Remaining Debt
Along with reducing your expenses, it's also highly recommended that you take steps to pay down any remaining debt you have. While it might seem unwise to spend your money to pay down debt, doing so will improve your credit score, which should help you net a lower mortgage interest rate. It might also allow you to get rid of expenses if you currently pay bills on a monthly basis for some of this debt.
Pick Up a Side Job
In the current economy, getting a side job is easier than it's ever been. Some common side jobs include:
Freelance work as a musician, writer, artist, or photographer
Drive for Lyft or Uber
Test websites and apps for usability issues
One way to control your monthly spending is by automating your savings. You can call your bank and ask them to set an automatic withdrawal that goes from your main account to a savings account. If managing your money is sometimes challenging for you, this option can be highly effective.
Saving for your first home might feel like an arduous and impossible task. However, all it requires is for you to take some small yet effective steps to build your savings. Once you've set a budget, you can get started on reducing your expenses, paying down debt, and even picking up a side job.