Saving money to buy a home remains a big part of the American Dream. In fact, 84% of Americans said buying a home is a priority, up significantly from 75% in 2018, according to the latest NerdWallet Home Buyer Report.
But with home prices steadily rising, some younger Americans fear they will never get ahead of the game when it comes to saving enough to buy.
Financial advisors offer these suggestions to help put the dream within reach no matter how much you earn.
- Improve Your Credit Score – The better your credit, the less you pay in mortgage interest. According to FICO, if you have a credit score between 620-639 and buy a $374,900 home on a 30-year mortgage, you could pay $282,893 in total interest. The same mortgage with a 760-850 credit score could reduce the interest to $164,213—a savings of $118,680 in interest over the life of your loan. You can build credit by putting small amounts on your credit card and paying them off monthly. You can improve credit by paying down high balances and by disputing misinformation.
- Check Out Available Assistance Programs – Putting 20% down on a home is not the rule. FHA loans offer lower down payments for first-time homebuyers. Active-duty service people and veterans are entitled to special options. Some states offer reduced down payments and down payment assistance for Emergency Medical Service providers, police officers and healthcare professionals, and the U.S. Department of Agriculture (USDA) provides special loan programs in eligible rural areas. Search out other available homebuyer assistance programs in your state and/or at the U.S. Department of Housing and Urban Development.
- Know How Much You Can Afford – A good rule is to plan on paying about 30% of your income on combined mortgage and maintenance costs. Test drive your ability to manage this by setting that amount of money aside for a few months to see if it’s doable. If the cost is equal to or less than your current monthly rent, you should be able to move forward.
- Save Diligently – Start by slashing your spend. Keep a record of everything you spent money on in the last 30 days. Then go line by line to see where you can reasonably cut back—and you can’t spend money you don’t see. Use automatic deposits to move money from your paycheck directly into savings.
