Transitioning from renter to homeowner is one of the biggest decisions you’ll make throughout your lifetime. It can also be a stressful experience if you don’t plan ahead by budgeting and saving prior to looking for your dream home.
Budgeting is an essential ingredient that helps alleviate the stress associated with monetary issues that can sometimes arise if you purchase a home without knowing all of the associated costs – including down payment, closing costs, ongoing maintenance, taxes and utilities.
The trouble is, many first-time homeowners fail to think about their finances carefully, plan a budget or set aside savings. And in this society of instant gratification, monetary problems can quickly escalate.
The key is to craft a realistic budget based on your goals. Once that’s in place, track your spending and stick to your budget. Budgeting is a key driver that determines how best to save your hard-earned money in order to be able to invest in a home.
Start by listing your household income, then your household expenses, and review your spending habits. All of this can be done on a pad of paper, a computer spreadsheet or even an app.
Keeping receipts for everything that you purchase will enable you to accurately keep track of where your money is going, each month, so that you can review and make the necessary changes whenever needed. It is okay to chop and change as you go along.
Scrutinize all areas of your life; from entertainment to food, where you buy your food and clothes, and how and where you travel. Also, look at where you can make adjustments and in turn savings. This analysis will tell you if you are a saver, a splurger, a spontaneous shopper or a hoarder. Understand yourself and become a savvy saver.
The most important part of budgeting is sticking to it i.e. being prepared to stop spending on any category once the budget for that category has been exhausted. I am sure most people find this to be the most difficult thing to control.
Budgeting provides you with the opportunity to re-evaluate your needs and wants. Do you really need all those TV channels, or the gym membership you never used and all the other things that were really not all that necessary? Once you carefully examine your expenditure you may realize that there are many things you don’t really need.
Having a concrete budget in place along with a good amount of savings is vital before you start looking for your dream home and your first mortgage.
Here are three of our top tips to help you prepare for the purchase of your first home:
- Set up a savings account. You can deposit a predetermined amount into this account each pay period that you will not touch unless it’s absolutely necessary. This will enable you to put money aside for a down payment and cover closing costs, as well as address ongoing homeownership expenses such as maintenance, taxes and utilities.
- Save up for the big set up purchases. As you accumulate money in your savings account, you will be able to also save for specific purchases to help furnish your home – avoiding the buy now, pay later mentality, which can have a negative impact on your credit when you’re seeking mortgage financing.
- Surround yourself with a team of professionals. It is extremely helpful to enlist the services of a licensed mortgage professional and a real estate agent when purchasing your first home. These experts are invaluable to you because they have the experience helping so many other people like you everyday. They can educate you and are able to answer all of your questions. A mortgage professional has access to multiple lenders, and can help you get pre-approved for a mortgage so you know exactly how much you can afford to spend on a home before you start looking, while a real estate agent will be able to match your needs with a house you can afford. Both parties will negotiate on your behalf to ensure you get the best deal. Usually, their services are free. They will also be able to refer you to other reputable professionals you may need for your home purchase, including a real estate lawyer and home appraiser.
If you have mastered the art of budgeting and are ready to make that first dream home purchase let’s set you up with an appointment with one of our licensed mortgage brokers to get that pre-approval out of the way!