How to Save For your First Home

Posted on 21. Apr, 2006 by in Real Estate

bighouse.jpgSo, I figured after my last post “condeming” negative equity and telling people to put 20% down on a house I should probably help you do that, right? So here goes, my advice on saving up to buy your first home:

SAVE LIKE CRAZY!

Granted, that is the #1 tip I can give you, but there are some other (more specific) things you can do. I wouldn’t leave you hanging like that 🙂

  1. Set a Goal: Your goal, as I mentioned before, should be 20%. How much is that? That’s where your friendly neighborhood lender will come in handy. Sit down with them and find out with your credit rating how much of a house you can afford. Then subtract $15-20k from that – and that’s how much house you may be able to afford. I say “may” because there are some other factors that should come into play – the biggest being how much do you feel comfortable borrowing. This is the point at which all that talk of budgets comes in handy – because you’ll know what you can afford (or not).
  2. Open Up a Separate Account: By setting up a separate account you can keep better track of how much you have saved and it will help quench any thoughts of using that money. The best thing to do is to set up an automatic withdrawal from your checking account so that you “force” yourself to save. I would also recommend, if you can, to set up your account at a high-yielding savings account such as the internet options I’ve posted about previously. This way, you’ll make a little money while you save.
  3. Get Help: Nearly 23% of first down payments come as gifts from relatives and friends, according to a recent survey by the National Association of Realtors. While assistance from mom and dad is great, there are also other places you can look (that may be better for your relationship as well). There are many down-payment assistance programs for first-time buyers that are offered by banks, local governments and charities. Many are open only to low- or moderate-income buyers and some are targeted to specific communities.

    Some programs lend buyers a substantial portion of the down payment. For example, the California Housing Finance Agency can provide eligible first-time home buyers in Los Angeles 3% of a home’s purchase price as down-payment or closing-cost assistance. The money must be repaid when the buyer sells the home, refinances or pays off the loan.

  4. Check and Clean Your Credit: To obtain the best mortgage rate you need the best credit you can get. Since you’re going to be saving for a little bit, you will have time to check your credit and repair or change any mistakes. The faster you do this, the better because it might take some businesses a while to report back to credit agencies, etc.
  5. Check Mortgage Options: Lenders increasingly offer creative loans, such as interest-only loans (which I despise) and certain types of adjustable-rate loans, that can reduce your monthly payments — at least for a while. But these alternative loans can be much riskier than fixed-rate loans, because monthly payments can jump after a few years. A general rule of thumb is that your monthly mortgage payment shouldn’t exceed 28% of your household’s gross monthly income. Check out some mortgage calculators at Dinkytown.net to calculate what your monthly payment would be with different types of loans.

Well, that’s my advice. But I know that there are a few readers here that are realtors and I would really like to get their opinion as well – so feel free to chime in with your own advice for saving up for your first home.

Major source: WSJ

2 Responses to “How to Save For your First Home”

  1. Mortgage broker

    16. Jun, 2006

  2. Brown

    09. Aug, 2006

    Great site!

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