Many of us have felt the wrath of student loan debt– I know I have.
There’s no doubt that debt can accompany a bit of anxiety. It can make you feel that certain milestones like moving out or buying your first home are totally out of reach. In fact, 61% of millennials claim they’ve delayed buying a house because they felt overwhelmed with debt and underprepared.
But, I’m here to tell you that doesn’t have to be the case. You can save for life’s major purchases while still paying your bills and living your life comfortably.
How, you ask?
If you feel like you’re struggling financially, don’t let it stand in the way of buying your first home and living your best life. Here are some ways you can save up for your dream home with a little bit of hard work and dedication.
1. Know what you’re spending money on
Before buying a house, you should know certain aspects of your financial status like your credit score and your debt-to-income ratio. The higher your credit score and the closer your debt-to-income ratio is to 43%, the better your chances are for getting considered by a lender and approved for a mortgage.
A mortgage is likely one of the biggest investments you’ll take on in a lifetime and determines the amount of each monthly payment you’ll be paying over the course of the loan term, so it’s important to know which loan best suits your lifestyle and spending habits.
There are several different types of mortgages you can apply for such as conventional loans, government-backed loans, and jumbo mortgages. All of these loans differ in approval standards, interest rate, and down payment, which will all affect how much money is needed to buy your desired home.
Keep in mind, too, that mortgages can be refinanced once you’ve built up equity in your home. This can ultimately lower your monthly payments to fit your ever-changing lifestyle and spending habits. To find more information about refinancing home loans, read this post or visit the Quicken Loans blog to learn about the home buying process.
2. Develop a system for saving
Once you’re fully informed about the expenses that come along with home buying, you can start developing a budget that allows you to save money for those expenses.
Many financial experts swear by a 50-30-20 spending rule. Using this guideline, 50% of your monthly income is dedicated to your needs such as rent and phone bills. Then, 30% would go toward your wants like going out to eat, while the final 20% would go straight into your savings. This system lets you enjoy your favorite activities while still allowing you to set money aside to put toward your first home.
To help your savings exceed that 20%, pile up any extra cash and put it toward a special account for your home savings. You can also go back to the piggy bank method– set aside any coins you accumulate and watch them bring you closer to your goal slowly but surely. Or, there are other ways to get extra income, like selling unused items or finding paid part-time work.
It’s also helpful to set up auto-deposits from each paycheck so that you’re left with no choice but to handle your earnings responsibly.
3. Pay off existing debt
Similar to a healthy credit score and an appropriate debt-to-income ratio, a small amount of existing debt will better your chances of getting approved for a loan. That said, minimizing your existing debt before applying for a mortgage can increase the amount you’re approved for. Plus, paying off credit card debt or any other loans will take away one more monthly expense that you can instead allocate to your home savings.
It’s recommended that you pay off debt with the highest interest rate first and that you pay more than the minimum balance when possible. And, if credit cards are a large portion of your debt, make sure to halt the spending on them while you’re paying them off. The faster you get those balances cleared, the closer you are to landing your dream home.
4. Reduce your monthly expenses
Changing your spending habits is the best way to accelerate your savings and prepare you for the home buying process. Even small adjustments to your behaviors can save you a ton of money in the long run. If you’re like me, you’re subscribed to so many services that it can be hard to keep track of. Cutting back temporarily on these subscriptions can help you save up and pay off debt fast. And remember, music and TV streaming services can always be acquired back later on.
If you aren’t willing to give up some of your monthly services, look for cheaper or free alternatives. Consider at-home workouts instead of a gym membership to conserve cash. Other lifestyle adjustments like buying off-brand products, packing lunches at home, and cutting back on transportation will lower daily costs and you’ll be able to put more toward a down payment for your first home.
Making changes in your day-to-day can be a tough challenge, but reaching your goal of buying a home is absolutely worth the struggles along the way. Find the time and determination to build up a comfortable savings account and put big bucks toward your dream home.
Do you have any insider tips on how you saved for your first home? Leave a comment below!