home prices and the market in your area, but it’s a challenge for almost everyone.
If you’re still trying to get your head around the first steps toward saving for your dream home, we’ve got five smart tips for how to tackle the problem from multiple angles.
#1: DON’T SPEND MORE THAN YOU EARN.
This one’s obvious, but you can’t save up a down payment if your monthly expenses outpace your income.
If you’re already living below your means, great! Look at past balances to see how much money you usually hang onto each month. Plan to set at least that much aside regularly, then decide if you need to make any changes.
But if you’re living paycheck-to-paycheck, then the first step toward buying a home is to see what expenses you can cut.
Look at your recent spending across all accounts (and don’t forget cash!).
Start by identifying things that you won’t even notice are missing. Are there streaming or software subscriptions you rarely use? Are there purchases like coffee that you make more out of habit than pleasure?
Most people can make small changes to their utility bills without feeling the difference, as well. Threaten to cancel your cable or internet, and you’ll probably get a deal. Turn the thermostat down a few degrees, and be more diligent about turning off lights and appliances. It’ll add up.
Next, look for sacrifices that you’ll be able to sustain for at least a few months. Cutting your expenses too deeply at once can make the changes untenable – people often get stressed and frustrated with the new restrictions and give up. To keep yourself on track, it’s better to tighten your belt in stages. Pick one or two changes a month so you can focus and adjust.
If you’re not happy enough with the headway you’re making with the small expenses, great. If not, consider whether downgrading your lifestyle more seriously is possible. Can you move into a smaller place? Downgrade cars? Get a roommate?
We all tend to choose housing, cars, and other big expenses based on the best we can afford, and when you don’t have a goal in sight, that’s fine. But if you know that the change is temporary, sometimes you can live with a less-than-ideal situation to make a dream come true.
#2: MOVE MONEY OUT OF CHECKING.
Now that you’ve carved out some monthly savings, you need to make sure you don’t inadvertently spend those savings elsewhere. It’s helpful for most people to have a special savings account for this purpose, so you don’t see it as available cash.
Set up an automated recurring transfer for the amount of money you eliminated in #1 and set the date for right after your paycheck usually deposits. That way, the money you’re redirecting to your down payment is automatically “spent” before any unexpected needs or wants pop up.
If you’re able to pare your spending down even further throughout the month, it’s a good idea to move that money into savings, as well. You’ll need to handle these transactions manually since the amount will vary, so you should set a calendar reminder to “clean out” your checking at the end of the month. Just remember to time the transfer so that you won’t be hit with banking charges for accidentally violating the minimum required balance.
#3: WORK ON IMPROVING YOUR CREDIT WHILE YOU SAVE.
For your average American, it’s going to take at least a year to save up enough for a down payment on a house. That gives you plenty of time to raise your credit score as well. A higher credit score will give you more opportunities and lower interest,
which will reduce both mortgage payments and the total cost of buying a home.
The right tactics for improving your credit score will depend a little on your current situation. Credit cards can be a great tool for doing so, but only if you’re keeping them paid down on time. Since you’re going to be cutting expenses at the same time, you’ll have to be careful not to think of your credit card as a way out of your budget. Only you can judge for yourself whether this is a good idea.
#4: STEP UP YOUR INCOME.
There are two ways to earn more than you spend – spend less or earn more. If you’ve already cut expenses as much as you’re comfortable with and still aren’t happy with the numbers, you should consider increasing your income.
These days, there are many options for earning extra income, but some of those options come with expenses. Many popular suggestions amount to starting your own business, which is expensive. Others are low-cost to launch but require months (or even years) of effort before they start to pay out.
You need to consider what will get you an immediate and reliable increase in net income (which is what you make minus work-related expenses).
Start by considering your current job. Can you ask for a raise? Can you get an offer from another company for a higher salary?
If those aren’t feasible options (or aren’t enough), consider adding a part-time job. Think about it from the perspective of which jobs would quickly guarantee the highest net income. In other words, take into account how quickly you can start earning, how sure a thing the payout is, and whether the amount of effort is sustainable for the amount of time it will take to meet your goals.
If you’re considering “side hustles” or options where you’ll “be your own boss,” look very carefully at the numbers.
In particular, any hustle where you have to invest in inventory first is almost guaranteed to be a money sink, and that’s the opposite of what you’re trying to accomplish. Don’t take recruiters’ promises at face value; do your own research.
Selling a service is usually a safer bet. You could make use of a skill you already have, like handiwork or guitar lessons. If you’re good with animals, pet sitting may be an option. If you own a reliable car, delivery and rideshare apps tend to have an immediate return as long as you’re willing to put in the hours. Be aware of the built-in expenses, though, like gas, wear and tear, and extra auto insurance.
One final option is selling your stuff. You’ll probably want to purge before you move anyway. Garage sales are okay, but they’re really not the best option for earning the most these days. Social media marketplaces and auction sites will bring in the best possible price for things like exercise equipment, furniture, designer clothing, small appliances, and collector’s items.
#5: FIND A BUYER’S AGENT. (YES, NOW.)
It’s always a good idea to have some money for a down payment, but how much do you need? This is a more complicated thing to determine than you might think. Some people qualify for $0 down mortgages. Some markets are so competitive that a
certain amount down is almost mandatory to have an offer accepted.
Going into things informed means you’ll know how much you need to save and have a better idea of how long that will take. This can help keep you motivated toward your goal.
Luckily, there are professionals who will be in your corner at no cost to you: real estate agents.
Hiring someone as a buyer’s agent isn’t strictly necessary, and many people shop for a house without one. However, having a dedicated buyer’s agent will give you multiple advantages in exchange for zero downsides.
From a buyer’s point of view, they’re free. A buyer’s agent doesn’t get paid by the hour. They work with you in the hopes that you’ll use them to buy a house. Once you do, they get to split a percentage of the closing price with the home seller’s real estate agent. That comes out of the seller’s pocket.
The alternative to hiring a buyer’s agent is to negotiate by yourself with the seller’s agent, which can be daunting and time-consuming. A buyer’s agent will handle the negotiations, paperwork, and other details, making the process smoother and less stressful for you.
For more information on home mortgages, visit ACE Home Mortgage. If you’re looking for training and continuing education, check out ACE Training Platforms and ACE Continuing Education Credits or ACE Food Handler.