Saving for a home purchase can be a challenge. While it’s not always easy, it certainly is achievable. Create an action plan, be diligent about implementing it, and follow some of these simple steps to help you achieve your goal of becoming a first-time homeowner.
1. Create an account specifically for your down payment.
If you have a goal of saving for a home purchase, allocate a special bank account just for that purpose. By opening a savings account used only for your future home purchase, you help lessen the likelihood of tapping into that money for other things. In fact, make an agreement with yourself to render that money ‘untouchable’. Deposit funds into the account regularly and set weekly and monthly contribution goals. Double check with your bank to see if they offer any special interest rates or programs for first time home-owners looking to buy.
2. Find out what you qualify for and how much you will need to save.
Speak with a trusted loan officer or real estate agent to assess your financial qualifications. These professionals can speak with you about salary qualifications, credit score(s), monthly debt to income ratios, and post-liquidity requirements. By having your financial background analyzed, you can set a realistic goal for yourself and map out an attainable path towards your desired home purchase.
3. Assess your expenses.
Take a look at your current monthly expenses. Do your credit cards carry high interest rates and high monthly payments? If so, these two things will surely be hurdles you’ll need to conquer right off the bat. Why? High interest rates equate to throwing extra money out the window, and high monthly payments do not bode well for debt-to-income ratios. Get these types of debt behind you as soon as you can. Pay off your highest interest rate debts first and work from there. Aim to keep your credit in good standing, and make reductions where you can.
4. Set deadlines.
Deadlines are motivators. Create a reachable timeline for your down payment. This might entail paying all of your debt off before starting to save. Or perhaps you are within your means to reduce your debt and save slowly at the same time. Whatever your situation may be, work out a definitive plan that works for you. Don’t get discouraged if you have a ways to go. Stay on track and keep to your goals and deadlines.
5. Use ‘Direct Deposit’.
If you never see the money, chances are you won’t spend it! Figure out how much money you can afford to put into savings each month and have that amount automatically deposited into your down payment account. This strategy is an excellent way to ensure that money goes into that ‘home purchase’ account every week or month.
6. Pay your bills on time.
Your credit score is going play a large role in qualifying for a mortgage as well as getting a good rate. If you have any credit issues, take steps now to work towards rectifying them. If you aren’t sure, it doesn’t hurt to run your credit to find out. Stay on top of your monthly payments and keep that credit in good standing.
7. Inquire about IRAs and 401Ks.
Look into any first time home-buyer benefits with your current IRA or 401K. Some will allow you to invest a considerable amount of pre-tax dollars and withdraw without penalty for home purchases. Explore the details of this potential option. Prior to making this decision, however, be sure to consult with your accountant or financial advisor to make sure this is the best choice based on your financial situation. If you end up purchasing in a co-op, you will also want to inquire about the building’s policies as they pertain to the use of these types of funds for purchasing.
These are simply some initial steps you can take to start saving for that first home. If you’re ultimately looking to purchase in an NYC co-op, keep in mind that you will also have to meet certain financial requirements for the building in order to be approved for the purchase. (Co-ops are generally stricter than banks when it comes to approval.) However, if you are on the path to saving, carry little to no debt and possess a steady job history, there are creative solutions that can absolutely lead to home ownership.
Need assistance with the purchase process? Contact us!