Deciding to become a homeowner after renting is one of the biggest decisions you’ll make throughout your lifetime. Planning ahead by building a budget and saving before taking your first steps towards homeownership are key considerations for ensuring the transition is as stress-free as possible.
Budgeting empowers you to look to the future and consider all of the associated costs of homeownership – including down payment, closing costs, ongoing maintenance, taxes and utilities.
It’s essential to create a realistic budget based on your goals. Track your spending and stretch your dollars further by sticking to your budget once it’s in place. Budgeting offers a step-by-step formula for figuring out how to best save your hard-earned money to invest in homeownership.
Start by listing your household income and expenses, and then review your spending habits. All of this can be recorded in a notebook or on a computer spreadsheet. It doesn’t have to be fancy – but you should be able to regularly revisit and easily amend your plan to suit your needs.
Keeping receipts for everything that you purchase will enable you to accurately track where your money is going each month so that you can review and make necessary changes on an ongoing basis.
Examine all areas of your life from entertainment to the type of food you buy, where you buy clothing and shoes, and how and where you travel. Also look at your spending personality and make necessary adjustments. Are you a saver, a splurger or a spontaneous shopper? Become smarter with your money and avoid impulse buying.
If you find you’re spending a lot of money in a specific category, such as entertainment for instance, set aside a reasonable amount each month and prepare to stop spending money in this area once your budget has been exhausted.
Wants versus needs
Budgeting provides the opportunity to re-evaluate your wants and needs – from large-ticket items such as new furniture to regular monthly expenses like a gym membership. Budgeting gets you thinking about expenses and purchases you may be making on autopilot.
If you can set your budget solidly in place before you head out home shopping, you’ll be far more prepared to purchase your first house.
Once you know how much you can comfortably afford to set aside, deposit that predetermined amount into a designated savings account each pay period, and don’t withdraw from this account 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.
As you accumulate money in your savings account, you’ll also be able to 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 it’s time to qualify for a mortgage.
Do you have questions about how to create your budget and become a homeowner sooner? We’re always happy to help! Answers to your questions are just a call or email away.