Tips for First-time Homebuyers
Let’s say you’re looking to buy your first home, but you have just one little problem: your savings account sits at a whopping 3-figures. You have some work to do. Even if you’re entertaining the thought of a zero down payment mortgage, you will still need to come up with some cash for earnest money, closing costs, a home inspection, possibly appliances, and other regular expenses that go along with home ownership.
Oh yeah, and beyond other regular expenses in owning a home, we homeowners also have fun expenses come up. I believe there is some sort of law of the universe that says “in your first year of homeownership you will have something go wrong (aka drain your bank account). The water heater takes a dive. You have a plumbing leak. Your air conditioner works great for 3 weeks, then says, “I think I’ll die now.”
The bottom line is this: home ownership costs money beyond that estimated mortgage payment you found online. Here are some tips to help you save money for your first home sweet home.
Know how much you Need to Save
To do this, meet with a loan officer. This week. Find out what you are pre-approved for and discover your options for down payments. Also get an idea of how much your closing costs will be.
Once you have this in mind, add up any additional expenses you will have. Will you need to buy a washer and dryer? From there, add a little extra remembering those “fun” expenses I had mentioned earlier. Now you have a goal to start saving for.
Establish a set of rules for saving money.
It’s great to have a goal in mind when saving money, but it’s also a good idea to adopt a set of rules to live by.
Set rules. Stick to them. Don’t break them. No matter what!
This is a concept I learned from Craig Ballantyne, author of The Perfect Day formula. In his book he talks about the importance of setting rules for your life. I suggest rules for your savings plan. Rules that you will live by no matter what!
Think of when a woman discovers she is pregnant. She is not going to merely set a goal and kind of try to not consume alcohol while she is carrying the baby. If someone asks her to go out for a few drinks, her response will always be “no” and nothing will change her mind. She has a rule: No drinking alcohol while pregnant.
You need this type of discipline when saving for your house.
We are all different, but here are some ideas:
If you know you are prone to impulse spending and shopping at the mall, you might need to have a rule that your credit cards stay at home when you go shopping.
If you spend a lot of money on dining out, you might need a rule that you only go out to eat once per month. You are going to stick to this rule even if all of your friends are going out to eat and want you to come along.
To reach your savings goal, you might need a rule that says, “I put $XXX from every paycheck in my savings account.
Your rules might be different than these. Just be sure to set rules and follow them no matter what.
Get used to saying “No”
Q: Do you want to come out to Olive Garden with us? A: No.
Q: Want to go the a concert next week? Tickets are only $50 a piece. A: No
Q: Macy’s is having a Labor Day sale! Let’s go shopping! A: No.
“No” can end up saving you a ton of money.
Saying “No” closely relates to your rules that you live by. By adhering to this practice and being comfortable with it, you can stay on track toward your savings goals so that when the time comes to make an offer on a home you are not stressing about how much money you will need.
Recap:
1. Work with a lender to see what type of loan you can qualify for, how much of a loan you can get, and how much money you will need to close the deal on the purchase of your future home.
2. Develop a set of rules to live by when saving money so you can have a concrete plan to achieve your dream of buying a home.
3. Get comfortable with saying “No” so you can resist temptation and stay on track to reaching your financial goals pertaining to the purchase of your home.