5 budgeting tips for home buying in 2021
Now that 2020 is behind us and things are looking a little brighter for the New Year, you might be thinking about putting down roots and transitioning from being a renter to becoming a homeowner. Or maybe you already own a home but need a slightly bigger place due to all the working-from-home you're doing, not to mention all the remote learning your kids are up to.
If that's the case, there's no better time to start thinking about budgeting to buy a home than right now in the first weeks of 2021.
Five budgeting tips for new and first-time homeowners
Smarter saving includes setting a budget you can live with and making a plan. Hopefully, following these 5 tips will help you own your new home faster than you may have ever thought possible.
#1: Be fiscally transparent —with yourself.
When budgeting to buy a home, you need to know where all your money is going in your day-to-day life. If you don't know exactly where you're spending your hard-earned pay or what you're spending it on, it's unlikely you're going to be able to create and stick to any kind of budget. There are plenty of online budgeting tools available (see this recent list from the folks at NerdWallet), but you can also go old school by using a spreadsheet to jot down all your spending.
Look at your credit card bills (which should be easily downloadable from your bank) and you'll get a good idea of what you're spending money on. But don't forget to take into account car payments, gas, electric bills and any other direct payments that might not go through your credit card or checking account. Think about non-credit/debit payments you might make, too, like leaving a few dollars as a tip at a restaurant or paying a babysitter or dog walker in cash. Go back at least six months to get a clear picture of what your spending patterns look like overall. Keep it updated so you can identify new opportunities to reduce spending and start saving.
#2: Cut it out. Spending, that is.
It's much easier than you'd think to spend way too much on things you don't need. Take a look at the spreadsheet you created in the previous tip and decide which expenses are things you can easily live without. Too many White Claws on the weekends? Cut. Subscribing to a weekly chef kit cause you're too busy to do the grocery shopping yourself. Cut. Shelling out for Spotify when the free service is perfectly fine? Cut. Cutting cable but still paying for Netflix, Hulu, HBO and Prime TV? How much TV can you consume? Cut, Cut, Cut.
With a little research, you may also find discounts on car insurance, renters insurance and more. You may even find you can do without that extra expensive latte day after day. Every dollar helps, so look for things that are extraneous and get out your scissors.
#3: Play 'house' and make fake mortgage payments.
It's time to calculate your estimated monthly mortgage payment. We have a simple online calculator to help with this. Just enter a realistic home price, the amount of down payment you're thinking of making, how long you're looking to borrow for (30 years or 15 years) and a possible interest rate. You can find an average rate in the news, but they're based on many individual factors and will change by the time you're ready to buy a home, so just make one up that's somewhat realistic. You can even include estimated property tax and home insurance tax if you want to get really detailed.
Take the amount the online calculator spits out and deposit it — minus the amount you already pay in rent — into your savings account. Do that month after month. Not only does it get you used to making payments before they become a reality, but you're also (without realizing it) building up a little nest egg that can later be applied to your down payment and closing costs.
#4: Be automatic!
This is simple. Set up a “homeownership savings account”. One that you don't touch for any reason other than buying a new home. Figure out how to make automatic deposits to this account so that you never have to think about them again. Then pick a doable, monthly lump sum that works within your new budget — maybe it's the amount of all the savings you unearthed when you did your budget-cutting in tip #2.
If you're the type who might creep into the account to withdraw from time to time, make it even harder for you to do that. Open the new homeownership savings account with a totally different bank, maybe even an internet-only one, and have your auto transfers go from one institution to another. Many have no monthly fees to worry about (bonus). Some even allow you to create separate accounts to save towards specific goals so you can differentiate where your money is going: divert some to future moving expenses, some to the down payment and some to closing costs. You get the idea.
#5: Get your credit in tip-top shape.
There's nothing more critical to your homeownership plans than your credit score and credit history. Get a free copy of your credit report and jump in. You'll see it's a mix of payment history, how much credit you're using compared with how much is available, your credit history, mix of types of credit and even how many times you have applied for new credit.
Read the report carefullyand take steps to investigate and correct any errors you might see. Pay down where you can and make an effort not to close any accounts (even if you no longer use them). You can do all of that after you buy your home. Right now, you simply want to make your credit report shine. Want to read up more on why credit scores are so vital? Check this out.
Think you have what it takes? You got this!
Don't be discouraged if your financial situation is not where you want it to be. The best part about credit is that it can always be repaired – sometimes in just a few months. With a little advanced planning and better spending habits, you could soon qualify for your new home.
The five tips outlined above are an excellent way to gather the details you'll need to showcase when it's time to work with a Movement Mortgage loan officer and show them that you're serious about owning a new home in 2021. Ready to chat with one of us now? Find a local loan officer in your area who can help.