How to Start Saving for Your First Home With No Additional Money

Every family dreams of owning their own home, but saving the money you need for a down payment can feel daunting. However, you may not need as much money as you think, and with the right financial planning, you can build up enough savings for the down payment you need.

Nearly 65 percent of Americans own their home. First-time home buyers, primarily millennials, are contributing to the growing number of home sales by taking the plunge into the real estate market. The rising cost of housing is hampering home sales, but first-time buyers have some advantages because they often can qualify for lower mortgage rates with a smaller down payment. Even with these advantages, buying a home still requires careful financial planning.

What you need is a well-crafted financial plan and a commitment to save enough money for your down payment. Here are some strategies to consider to help you begin saving for your first home.

Decide How Much You Need

The first step is to create a comprehensive household budget. Calculate your monthly income after taxes, then match it to your monthly expenses. You should have a surplus every month (although 78 percent of Americans live paycheck to paycheck). If you don’t have enough to set aside savings each month, work through your budget to see if there are items you can cut back on in order to add more to your savings.

Thinking of buying your first home? Download The Essential Guide for First-Time  Home Buyers. >>

As part of your budgeting process, determine what your target amount is for a down payment. You can start by looking online to see what housing prices look like in your area. Choose one or two neighborhoods of interest and look at Zillow,, Trulia, Redfin, and other home search sites to get an idea of comparable home costs and how much you would need for a down payment. Knowing the down payment amount will help you determine how long it will likely take to save what you need.

If you can, you want to save at least 20 percent of the purchase price for your down payment. That will put you in a stronger position to qualify for a mortgage. However, it is possible to buy a home with less than 20 percent down. Many banks and credit unions are offering special mortgages for first-time homebuyers that require only 10 percent down. If you qualify for a loan from the Federal Housing Administration (FHA), you can get a 30-year fixed mortgage with as little as 3.5 percent of the purchase price as a down payment. However, if you can make a 20 percent down payment, you will pay less for your home in the long run and be able to quality for a better home loan interest rate.

Make the Most of Your Money

As you accumulate your nest egg, you need a safe place to store your savings and make your money work for you. Play it safe—avoid risky investments and stick with a reliable, interest-bearing savings account or money market account. Investments might be attractive, but they seldom pay off in the short term and you could lose your nest egg. They also aren’t insured, unlike a bank account.

Once you have your savings account set up, you can start setting aside cash for your down payment. If you come into a windfall, such as a bonus or a raise, be sure to put that extra cash into your home purchase savings fund.

One of the easiest ways to save is by cutting down on your expenses. Use your household budget to identify expenses you can reduce. Can you cut down on your grocery bill? What about utilities, or the cable bill, or dining out? Any expenses you can cut from your budget should free up more funds for your savings account.

A new savings program was just passed into law for Missouri residents. The Missouri Homebuyers’ Initiative was created for first-time homebuyers to help them save for a new home. The initiative allows you to deposit up to $16,000 (or $32,000 for couples) of after-tax dollars annually and receive 50 percent off your state taxes on the amount deposited. All interest you accrue on the account is tax-free to help you save for a down payment. Parents and grandparents also can set up an account for their children and grandchildren.

Even if it seems impossible, think seriously about buying a home rather than paying rent. Not only do you gain tax advantages and the pride of home ownership, but you end up “paying yourself” instead of your landlord with returns in having your house as an asset that will appreciate in value over time.

If you are getting ready to buy a house, be sure to partner with a bank you can trust and discuss mortgage options. Your bank’s loan officer will be happy to help you qualify for a mortgage that you can easily afford. Contact us to get started!

Download Guide: The Essential Guide for First-Time Home Owners

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