Get Your Savings in Order Before You Buy a Home
Whether it's your first home or not, saving money to buy a home is no small task! Buying a home is a huge commitment and takes some planning and financial organizing, whether it's for the down payment or the future expenses as a homeowner.
And since I am no expert in the field, I turned to our friends and professionals at USAA to gather some insight. Thankfully, Greg Jaeger, President, USAA Residential Real Estate Services, Inc. graciously shared his expert knowledge with us.
Here are 3 quick tips to keep in mind as you begin to save for a home.
Understand what your target is.
There are many homes on the market. They range in price, location, size and style. Meet with a lender to determine what your finances can support.
Choose a type of loan.
There are numerous types of loans. and they will determine what you owe for your down payment. For example, a VA loan can finance the entire home cost, in addition to some closing costs. Other loan options allow you to put as little as 3% of the purchase price as a down payment. The most cost effective loans would generally require 20% of the purchase price as a down payment, but that can be a really big challenge-- especially in a higher home price market!
Looking closely at loan types and understanding their features as well as your target is an important step, since it will help you learn how much you need to save for a down payment. As you discuss these loan product types with the lender, ask for general guidance on the costs associated with closing the loan that are separate from the down payment, because you will need to save up for those costs too.
So, how do you save up for the down payment?
Create a budget and stick to it. If you don’t have a long lost family member that has left you a significant inheritance or you didn’t recently win the lotto, Greg’s best advice is for you to create a realistic budget. You might be surprised to find out how much money we all just let slip through our fingers when we aren’t following a budget. Figure into the budget what you need to save out of each paycheck and separate that money out into a dedicated fund. He generally doesn’t recommend borrowing from retirement funds for this purpose.
This should get you moving in the right direction and you may have your down payment saved up sooner than you think!
If you need help creating a budget and sticking to it, check out Dave Ramsey’s Every Dollar or Mint. You can also find a number of other budgeting apps that are as equally effective online or on the app store.