Purchasing your first home is a major decision. The average US home costs nearly $375,000, and additional upgrades, repairs, renovations, insurance, and property taxes can also take first-time homebuyers by surprise.
Before purchasing a home, you need to take an honest look at your budget to determine how much you can afford for a down payment and monthly mortgage payment. A down payment, additional closing costs, broker fees, appraisal fees, and mortgage origination fees can total up to 5% of the property’s overall cost, adding on thousands of dollars.
Interested in purchasing your first home but not sure where to get started? Here’s how to save money for a new home:
Ways to save for your first home
1. Set a realistic budget.
Creating a budget and sticking to it is one of the most effective ways to save for a new home. Write down all of your current bills: student loans, insurance, groceries, utilities, credit cards, rent, and so on.
Once you’ve made a list of your monthly expenses, identify areas in which you can reduce costs. Ask yourself these questions:
- Are you spending more than you’re earning?
- Can you downsize by moving into a smaller home or reducing the price of rent?
- Can you purchase a smaller car with better gas mileage than the vehicle you currently own or lease?
- Can you consolidate any outstanding credit card debt into a lower monthly payment with a reduced interest rate?
- Can you ask for a lower interest rate on your student loan payments?
- Can you reduce the amount of money spent on gas by taking public transportation to work a few times a week?
- Can you eliminate expenses such as cable or video streaming services to save a few extra dollars each month?
- Can you switch to generic brand products as substitutes for certain foods or personal care items?
2. Ask for a raise.
Increasing your monthly take-home pay can help you save for your first home. Although asking for a raise may seem intimidating, developing an effective strategy can ease your mind.
Avoid asking your supervisor for a salary bump when work is hectic. If your company conducts an annual or semi-annual employee review, write down a few key points that illustrate why you deserve a higher salary.
Make sure to prepare. You should present ample data related to your performance and point out any large projects you’ve recently tackled. Describe what you’ve been working on and how you spend your day. This will help your boss understand why the company can’t afford to lose you and why you deserve a salary increase.
If your request for a raise is denied, thank your manager for their time and ask what you need to do to get a raise in the future. If you’re not given specific goals to achieve over the next few months or years, it may be time to start looking for a higher-paying job.
3. Consider taking on a side gig.
There are many ways to pull in extra money outside of your nine-to-five career. More people are taking on side hustles to pick up extra cash, from selling items on websites like eBay to freelancing.
Writing, photography, art, or even virtual administrative work can pay per project or by the hour, and most freelance jobs can be performed from the comfort of your home.
Driving for a ridesharing or food delivery service like Lyft or Uber is also an ideal side hustle because it can accommodate any schedule. This allows you to work as little or as much as you want.
The best part about a side gig? You can have your paycheck deposited directly into your savings account, making it less tempting to spend.
4. Eliminate as much debt as possible.
Debt can be crippling, especially if you’re hoping to purchase your first home. Although putting additional income toward credit card, personal, auto or student loan debt may sound counterintuitive, improving your debt-to-income ratio may help you secure a better interest rate from your bank or credit union.
5. Skip your annual vacation.
Remember that any sacrifices made while saving for a home are temporary.
Although vacations are incredible experiences, they can also be extremely expensive. According to a survey from Bankrate, respondents who went on vacation spent an average of $1,979 on all related expenses.
Instead of spending thousands traveling to a remote destination, take time to explore historical landmarks, parks, and other interesting places near where you live. Museums, nature preserves, or even nearby spas can provide much-needed relaxation at just a fraction of the cost of an expensive getaway. Your town or city’s local library may even host cultural events or classes that teach exciting new skills, often at no cost.
Buying a home for the first time?
Buying a home for the first time can seem daunting, but it doesn’t have to be. Download our “Home Buying Guide” today for useful tips on purchasing your first home.