The neighbors are too loud, the floor creaks, and the amount of sunlight your apartment gets resembles the inside of a cave rather than the open windows of your dreams…
Such is the life before owning your own place.
Now, obviously not everything is perfect once you own the place of your dreams, but it’s still one of the largest life and financial goals that most people will pursue, so let’s get 4 quick steps out on the table so you can get the keys to your place sooner rather than later – sound good?
1. Get yourself a House Savings Account
This is literally just a savings account, but….(and it’s a huge but) it should be a separate savings account that is exclusively used to save up money for your down payment and other house buying costs (there are lots of little extra costs that add up).
A lot of people think they can save for the next vacation, a down payment for a home, and a car all in the same savings account – but they are sorely mistaken. The reason is that when your funds are all mixed together, it’s super hard to keep things straight even if you think you can. Creating separate savings accounts, one for each major goal, will help you focus and save for each goal more effectively (More effective = better. Right?).
2. Figure out how much you need
A major question is “how much money do I need in order to buy a house?” And while this varies for each person, the simple way to figure it out is to estimate based on the price of the house you want to buy (which is tricky in and of itself). Let’s assume you think you want a place that costs $200,000. Well, on the very low end you will need a downpayment of about 4% and on the high end (and the one you hear about most often in the media) is 20%. Well, 4% of $200K is $8,000 and 20% is $40,000.
Admittedly, it’s a huge range, but a general rule of thumb is that the higher percent down you can put towards your home, the better, so aim for 5, 10, or 20% and if you fall short, at least you can still buy a place.
3. Save a regular amount each and every month
You can’t afford to wait to start saving. Even if you start saving $5/month now, you are building momentum towards being able to save more later, but you have to save something now! “I’ll start in a couple of months” is usually a recipe for disaster, so start ASAP.
But how much should you save? It’ll vary, but using the example above, if you want to buy your house in 3 years and you know you want to put 10% down, then you need to save $555/month. If you are saving with a partner or significant other, save together to share the responsibility as well as the excitement of working on a goal together.
Remember, even if the dollar amount per month seems high, the earlier you start the better since you’ll give yourself more time. The last thing you want to do is decide to buy a house in 12 months and have not started saving…that can be extremely costly and disadvantageous at best and impossible at worst.
4. Research, Research, Research
Information is power – especially when it comes to executing what will be the single largest purchase of most people’s lives. Take a home buying class (it should be free), ask relatives/friends/family/random people on the sidewalk about their home buying experiences. Ask for tips, tricks, and things to watch out for – they’ve been around the block so why not ask?
Redfin has free online home buying courses that you can attend in person or from the comfort of your couch. The city, state, and local governments have tons of resources as well. Get to know the market, go visit houses, talk to a bank or credit union about the mortgage and home buying process, and familiarize yourself with the terms, the process, and the finances. You can literally never know enough so do your homework and research.
Plan Now, House Later
Set your sights high and go after the place of your dreams (or the place for a starter home), but make sure to couple your goals with realistic and actionable steps right now so that you can increase the likelihood of success – a lot of people “want” but not many “do” and with these quick 4 steps in mind, you are now much closer to holding those keys. Go get it.
This post is adapted from Joe’s new book Rogue Finances: The “Un-System” Designed to Help You Become Financially Healthy, Successful, and Awesome.