Photo of Shane O'Hara, CFP® Shane O'Hara, CFP® Jun 21, 2020

Purchasing your first home is a milestone achievement for many American adults. However, houses can be costly and purchasing one without a plan can end up breaking the bank. Although, with some careful planning and saving, you can have enough to pay a significant down payment on your home and have a comfortable monthly mortgage you can manage.

There is no cookie cutter savings plan for preparing to buy a home. Everyone’s strategy looks different depending on current circumstances. However, there are some general tips to keep in mind that may be able to help: 

1. Determine your budget

Before you even look at a home, you should know what you can afford. You need to evaluate your income, your living expenses and your long-term goals when budgeting how much you can afford to pay into your home each month. 

Most people should aim to spend no more than 25% of their monthly income on their mortgage payment. If you find that this will strain your finances too heavily, you might not be ready to invest in a home or you might need to address how you are spending your money in other areas of life. 

2. Pay your debts

While trying to save for a home, you might think that paying off debts only slows you down. The truth is that paying off your debts helps you save. Credit card loans, car loans, student loans and other debts can limit how much you have leftover in your finances to dedicate toward your home purchase. Paying off some of or all of your debts before investing in a home can help reduce some financial strain and also help you secure a better mortgage rate. 

3. Calculate your mortgage amount

Traditionally, most people select a 30-year mortgage payment option, but if you can afford a 15-year option in your budget, you should aim for that. The 15-year option can save you tens of thousands of dollars in interest. Knowing how much you can afford for your monthly mortgage payment can be difficult to calculate in your head, so you should use a mortgage calculator tool like this one from Dave Ramsey.

Using a tool like this can help you see if you can afford a 15-year option or if you will have to wait or go with a 30-year mortgage instead. 

4. Determine your down payment

Usually, the more you put down in a down payment, the lower your interest rate will be. Ideally, you will put down 10 to 20%, with 20% being more likely to open you up to a lower mortgage payment. 

For example, if you are interested in buying a $200,000 home, you should be prepared to put aside $40,000 for a down payment to get an optimal interest rate without having to rely on Private Mortgage Insurance. 

5. Reduce your expenses

Saving starts with the simple stuff. Reducing your daily expenses can help you save more to afford a bigger down payment and to afford your monthly mortgage. You can try going out to eat less frequently or picking up hobbies that require little financial investment, such as hiking or other outdoors activities. 

Save for your home with the help of a ProVise financial advisor

Purchasing a home is an exciting decision, but it requires a lot of careful planning and consideration. The CERTIFIED FINANCIAL PLANNER™ professionals at ProVise Management Group can help you navigate your finances and make decisions on how to save for a home as part of your financial strategy.

We can work closely with you to assess your current circumstances and what kind of house you are ultimately looking to buy. We will line this up with your personal values and long-term goals to develop a personalized financial plan at a fiduciary standard of care. We also offer an unconditional money-back guarantee if you are unhappy with your written plan. Simply return it to us and we will refund 100% of the fee paid.

Are you ready to start saving for your dream home with the help of a financial professional? 

Contact ProVise today to schedule a complimentary consultation.