Becoming a homeowner is a goal that many Americans have and look forward to. Not only can it contribute your financial health (when executed properly), but it can also lay the foundation for your growing family, be the backdrop of your favorite memories, and become a lifelong project that you’re completely proud of.
But buying your own property requires a lot of personal and fiscal responsibility, from learning how to read the housing market, to applying for loans, to figuring out how much down payment you can afford—not to mention that buying a house typically requires a substantial amount of capital.
If you’re considering being a homeowner at any stage in your life, it’s important to start saving up now. Here’s why.
Housing prices change
If you pay any attention to finance or real estate news, you probably know how much of an impact the housing market has on economics in this country. And with that, you’ve probably heard about how much the real estate market can fluctuate over time. Housing prices dip and rise pretty much constantly in the United States, making the right time to buy practically unpredictable for potential homeowners.
This is the first reason why we recommend building your savings right away. If you have a substantial home savings, you’re in a better position to buy in a buyer’s market when you’re likely to find a better deal when you’re searching for real estate.
Let’s say you find the ideal cottage on the coast that you’ve always dreamed of: the market is in your favor and the price is right, but you don’t have enough money to make a down payment on the house of your dreams. Contributing just a small amount to your savings from the time your in your twenties could put you in a better position to buy if a situation like this were to happen to you!
Better financing options
Another plus to building a home savings in advance is that it could enable you to get better financing options because you’d be able to make a more substantial down payment. Jumbo loans, though they allow you to put less money down, can end up costing you more money in the long run if you incur higher interest rates or take longer to pay off the loan.
Having a bigger down payment can even help you secure a better bad credit loan if you have enough savings to buy a house, but your credit doesn’t qualify you for other loan types.
Edge on the competition
Many sellers prefer cash offers rather than credit because they are less likely to fall through than loans are. If you’re able to save money to buy a house outright, you’ll likely fare better if there are multiple buyers putting an offer in on the same house.
Another advantage to building your home savings is cutting down on your tax bill. If you live in a state with first-time homebuyer benefits, you can put your money in an FHSA (First-Time Homebuyer Savings Account) to avoid getting taxed on the income that you put toward your home savings. This money can be used for down payments and other homeowner costs. If you withdraw from the account for another purpose, you may face penalty fees.
If you choose to stowe your home savings in a traditional savings account, you’ll have more flexibility to spend your savings on other things you may need (besides a home). If you encounter some sort of financial emergency, like medical bills for example, you could employ your home savings as necessary.
How you can start saving
Ready to launch your home savings? Here are a few tips to help you do so:
Use a budgeting app to monitor your savings and track your financial goals
Commit to making a specified contribution to your savings each month
Keep your home savings in a separate account than your other savings
Saving up for a house may seem like an impossible goal right now, but by following our home savings tips and referring back to this guide, you can watch your savings grow and reap the many benefits!