How To Plan And Save For Buying A Home
Buying a home isn't just about the purchase process
. For most people, the home buying process actually starts a few years before they actually sign a purchase contract.
It starts with figuring out how much home you can afford. Then you need to figure out exactly how much you need to save to buy that home.
You need to figure out a plan of action for saving up enough money. You also need to start improving your credit to get it in tip top shape for buying a home.
Here's how to plan and save for buying a home.
==> Figuring Out What Price Range You're In
There are two factors you need to take into consideration when you're saving for your home purchase.
First, you need to figure out how much of a down payment you can realistically save for by the time you want to make a purchase. You should have about 20% of the home's value in cash by the time you make a purchase.
You should also calculate your "Debt to Income Ratio." Ideally, the mortgage debt you take on should be about 30% of your total income.
In other words, if you're taking home $3,000 a month, your mortgage should be $1,000 a month.
If your housing costs start to creep above 50%, lenders might start getting wary.
Using the monthly payment and total down payment as guidelines, estimate how much you need to save to make your purchase.
==> How to Save for the Purchase
Open a new savings or money market account specifically to save up for buying your home.
This account has a strict "deposit only" rule. Money only goes into this account, it never comes out. It's not an emergency fund, it's very strictly just for making your home purchase.
Come up with a specific number to put into this account every month. That number can be either a percentage of your earnings (E.g. 15% of your paycheck,) or it can be a straight number (E.g. $500 a month.)
Once you've figured out an amount you can realistically save, project out how long it would take you to save up your target down payment.
If you're saving $500 a month and you need $30,000 to buy a $150,000 home, it would take 5 years to put together that down payment.
Then you need to ask yourself: Is that time horizon acceptable? Or do you want to try to save more aggressively? Do you want to take on a second job to put more money aside?
Using this method, you can accurately predict when you'll be able to afford your home. You'll be able to systematically work towards that reality.
==> Preparing Your Credit
The moment you decide to buy a home, you should immediately start to work on your credit rating.
Get your credit report and work on getting negative items removed. Start getting your utilization rate lower.
If you have a few years, you might even want to consider taking on a small installment loan and paying it off to improve your credit.
Getting a strong credit score can have a big impact on your loan's interest rate, which can result in thousands in savings.
That's how to plan and save up for buying your dream home. Don't just put money in the bank haphazardly - Come up with a good plan, make sure all the numbers work out and execute that plan systematically.
by: Angel Noyal
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