Red Portfolio Home > Reaching Your Goals > Saving for a Home
Home sweet home.
Such a sweet sound.
To many, there really is no place like home. And if buying a home is on your “To Do” list, you need to start doing your homework. Not just for the house you think is right for you and the interest rate you want, but for the money you’ll need to make it yours.
Should you buy?
Just because all of your friends are buying homes, doesn’t necessarily mean it’s right for you. (Remember what your mom said about jumping into a lake…) You need to sit down and see if, financially speaking, it makes better sense to rent or buy. Your monthly rent, property tax, homeowner’s insurance, how long you plan to live there before selling can all affect this calculation. But once you know buying is for you, don’t wait. DO it. A house isn’t just a home, it’s an investment. And even if you’re planning on living there for five years, you’ll be building equity for yourself instead of your landlord.
Start putting it away.
We’re not talking about your belongings, but the money you’ll need for a down payment. Putting 20% down on a new home lets you avoid paying private mortgage insurance (PMI) on a traditional loan. But don’t fall into the trap of holding off on buying until you have that 20% or draining your bank account for it. There are other types of loans that can help you around the PMI. And if you’re not overly concerned about the PMI, many institutions will lend you 100% of the purchase price—no down payment needed. That being said, the more money you can manage to put aside for a down payment, the more purchasing power you’ll have. Plus, you’ll need to have some money on hand for closing costs.
Fast Fact! Closing costs can include fees for an appraisal, credit report, survey and points.
Consider opening a separate savings account that can’t be easily accessed (via ATMs, for example) as your new-home nest egg. Then make a commitment to deposit money in it monthly. If you’ve just paid off a credit card or a car or school loan, consider putting the money you’d normally pay to them into your house fund. A certificate of deposit (CD) is another savings tool that can usually offer a higher interest rate while still giving you shorter maturity terms (like 90-day or 180-day), so you can get to it easily if you suddenly find a house you want to buy.
Let the search begin!
When it comes to house hunting, it pays to do your homework. Make sure you’re up to date on recent home sale prices, market trends, houses on the market and neighborhood statistics. Remember, your goal is to find the right home for you, so try using a checklist to identify the features you need in a new home versus those you simply want. It’s also a good idea to get pre-qualified for a mortgage. That way you’ll have a realistic picture of what you can afford to spend on a house, saving you headaches—and heartache—down the road.
Fast Fact! Pre-qualification shows how much you’re eligible to borrow before you apply for a loan.²
If the house fits…
Be realistic in the house you buy. Obviously, you want to be happy where you’re living, but make sure you’re living with a mortgage payment that lets you enjoy other aspects of your life. Already bought with your heart and not your head? Then consider re-financing to make sure you’re where you want—and need—to be. You’ll reduce your monthly payment, giving you additional money to use for investments and/or savings.
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