We all remember the financial meltdown of 2008 when the market crashed due to the huge housing bubble. Fortunately, the housing market is going strong again as the jobs and interest rates associated with the housing market are rebounding. Of course, many Americans are thinking about buying a house, but they are still scared, and I understand them.
The whole fiasco of subprime mortgages and easy-money lending days are over and banks are requiring much bigger down payments.
Today, the median home price in U.S. is around $288,900 according to FED. That is a lot of money and even with a down payment of only 5%, you still need more than $15,000 at closing for a standard home. And don’t let me get started on the banks because every bank has their own credit scoring system, real estate market, various other factors, etc.
Your only option, unless you are Richie Rich, is to save money for your brand new home. Luckily, I’m going to give you a tip or two.
How to save money for a house?
As we talked about money saving plans in my last post, I’ve mentioned some of ideas and challenges for you try if you are in a tough financial situation.
If you already don’t have a dedicated savings account, you should open it right now. Go to your local bank and open it, I’m waiting.
Now that you have a dedicated saving account, you should contact your payroll department and tell them that you want a fixed amount of money sent there every payday via direct deposit.
Most likely you won’t even notice the money going to the savings account as long as you have a good budget worked out.
You should create a monthly budget
Saving money for a house is no easy task, and that is why you should create a monthly budget. Usually, spending is the positive difference between money going in and money going out of your account. That is at least in theory, in real life, you save at least some of the money.
A good idea would be to print out a list of your monthly expenses and check them off one by one. You should be collecting information on your spending habits and create a budget with that information.
For example, track your expenses for a month or so just to learn more about yourself. Now that you know what you are spending your money on, and you know your income, it shouldn’t be too hard to cut down on some costs.
Should I work more?
If you are working more, you should be spending less obviously and bring in more money. This is a great way to really blast off with your savings. If you can take every possible opportunity for any additional work, it will pay off in the end!
Do you have more than one car?
Let’s say you are married and you have two cars. One for you and one for your partner. You should consider getting rid of one car because you can save thousands of dollars in the long run.
If you or your partner’s job is relatively close to your home, maybe you should consider walking, using a bike, taxi or a bus. Actually, some studies have shown that using public transport is 80% cheaper than using your own car, sure it can be uncomfortable sometimes, but hey, at least, you will have more money in the bank for your new house.
Consider using a tax-free savings account
If you need money for a down payment on your house, you should consider using a tax-free savings account as your money will continue growing, without any tax obligation.
What this means is that you won’t have to pay any income tax on the money your earn as it grows in this account. Of course, this is not as easy as it sounds, you should consult with your financial planner first.
First-time homebuyer program
Some cities in the U.S. have become known for their first-time homebuyer program where they basically help with the down payment on the house.
These plans are usually initiated because of two simple reasons. Some cities simply need to redevelop a part of the city that is struggling or they want to attract and help people buy their first house.
If you are not sure that your city has one of these offers, you should check with your local city hall or look on the Internet. For example, I found Miami-Dade County and CalHFA to offer this program.
Debts come first
I believe this one should be a no-brainer, you can’t really save any money if you are paying a lot of interest to someone else. If possible, the first thing you should is pay off all of your existing debts. Start with debts that have the highest interest rate and work your way down until every single debt is paid off.
Why is it so important to pay off as many debts as possible? Because if you have too much consumer credit, you guessed it, you won’t even qualify for a mortgage.
Save some more money… again
Okay, saving a buck here and there is not bad, it’s productive but you won’t get very far if you suddenly stop spending money on that bubble gum.
Instead, you should aim for a bigger amount of money. For example, if you are considering taking a vacation this summer at a lake house, consider it again. Wouldn’t it be better if you saved up that money? Of course, it would. I know it’s hard, but just do it!