Financial stability is a major concern for most Americans, but even more for anyone trying to purchase their first home.
Nearly 60% of people admit to living paycheck to paycheck. If you’re ever going to purchase your home, you need to be able to set money aside every single month. Doing so requires you to carefully track your money with a detailed home budget.
Budgeting is simple in concept but difficult to carry out, especially when real-world expenses start to creep in. That said, you may be surprised how far setting aside a little bit of money every month will take you. Before long, you may just be able to put a strong down payment on a good first home.
Today, we’re going to help you purchase your dream home by giving you a quick home buying guide. In particular, we’re going to tell you some of the most common mistakes people make with their home budget.
It may seem far off right now, but keep reading and you’ll see that the right budgeting methods can help you get your finances in order.
Not Tracking Spending
Budgeting 101 is all about tracking the way you spend and adjusting it so that you can achieve your savings goals. The first thing you have to do is sit down and figure out where your money is currently going. From there, you can divide your expenses accordingly.
If you don’t track your spending, you’ll never be able to figure out where your money keeps disappearing. There are numerous budgeting methods that you can turn to, but you need to stick to the rules if you’re going to be successful.
One of the most popular for saving money is the 50-30-20 budgeting method. With this, you take 50% of your income for your needs and obligations (bills, groceries, gas, rent, etc.). 30% goes to savings and paying debts, then the other 20% is for recreational spending.
You can adjust this in order to save more, but you can’t do it without tracking your spending. There are plenty of apps out there that can help you with money tracking, so choose one and stick with it.
Budgeting for a House You Can’t Afford
The other thing you need to do right away is get a sense of what the real estate market is like in your desired area. It’s important to know how much you need to save to put a good down payment on the right home. It’s also important to know how much house you can actually afford.
When applying for conventional mortgage loans, it’s ideal to come up with a 20% down payment. It’s possible to secure a mortgage with less money down, but the terms of the mortgage might not be as favorable.
A big mistake that affects a lot of first-time home buyers’ budgets is trying to get the dream house instead of the right house. The real estate market is like climbing a ladder, so you might want to start your real estate search by looking for a fixer upper rather than your forever home.
Successful budgeting is only possible if you can manage to control your spending. Budgeting for the current housing market is daunting, to say the least, but it’s basically impossible if you don’t adjust your financial habits.
When you start tracking your spending, you’ll find out just how much you’ve been spending on things you don’t need. Clothing, eating out at restaurants, going to the bar – cutting back on unnecessary spending is the key to saving more money.
Even if it’s just a few hundred dollars per month, it makes a difference in your down payment. A larger down payment makes getting a decent mortgage more attainable.
Not Paying Down Your Current Debts
Obtaining a mortgage is also more difficult if you’re already carrying lots of debt. Before you set your sights on purchasing a home, it’s a good idea to take a look at any student or credit card debts you may have lingering around.
First of all, mortgage lenders look at these things when assessing your viability as a borrower. On a practical level, however, you don’t want too much debt weighing you down as you’re trying to finance a home.
Pay down your debts using the debt avalanche or snowball methods. Both of these methods expedite your ability to pay off debts, allowing you to focus on getting a mortgage sooner than later.
Neglecting an Emergency Fund
When you’re setting aside money, try to keep your savings organized so that you don’t have to dip into your home fund. Emergencies arise and, if most of your money is accounted for in your budget, you’re going to have to take money from your savings.
Whether it’s a medical emergency or car repairs, having an emergency fund will help you maintain a clear picture of your finances. It can feel like a huge setback when you have to pay for an unforeseen emergency.
Failing to Analyze Your Home Budget
If you don’t routinely look at your finances and budgeting methods to gauge your progress, things can take a lot longer than necessary. Being proactive about saving for a home is what will get you there in the end.
Keep a close eye on the money going into your home savings account. By looking at it on a regular basis, you may discover that you can put more money than you originally thought possible aside. Gradually increasing your home budget will get you to your real estate search more quickly.
Keep Budgeting and Get the Home You Want
With good home budget practices, you can systematically boost your savings account until you’re ready to start your real estate search in earnest. It takes a lot of discipline to become a new homeowner, but avoiding these common mistakes will help you achieve things that might not seem possible right now.
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