Buying your first home can feel like one of adulthood’s true markers and a dream come true. For today’s millennials, however, that dream may seem daunting, especially when they consider the other financial responsibilities that people their age commonly face. Student loans, credit card debt, and a higher cost of goods are all obstacles to becoming a homeowner today.
But with planning and hard work, millennials can get on the path to buying a house of their own. Here are some expert tips for maximizing dollars and ensuring that homeownership is a reality for every generation.
Set a budget – and use it.
Budgets seem easy enough, right? Set reasonable spending and saving limits, then follow them monthly. So why don’t more people use them? A recent Gallup poll revealed that only 30 percent of consumers regularly plan using a budget. This simple tool doesn’t require an advanced degree or even paid software to implement. Set a goal for money coming in, track money going out, and shore up the difference to ensure you’re meeting your obligations and putting aside extra for that down payment. You can use a basic Excel sheet or download one of the many apps that make it easy to budget from your smartphone.
Personalize your budget.
Your budget should include categories for every area of spending, from food to transportation to entertainment. However, your life might not fit into the same boxes as someone else’s does. This is why it’s essential to personalize your budget for your specific expenses. If you have special interests, unique work expenditures, or purchases that aren’t quite category-friendly, go ahead and make your own budget categories. Tweak budget templates as you need to make them yours. Customize software and apps to work best for your situation.
When you sit down to create your first budget, it’s tempting to set your goals first, then create an account of your spending that fits those goals. Unfortunately, a budget isn’t enough to change bad spending patterns and rewrite our lives to match our goals. We’re capable of change, but lasting change tends to be gradual.
If you’re looking for places to trim your budget, look first to your “discretionary” spending. Expenses like entertainment, food, and travel are areas where we have the freedom to cut costs. Rent, utilities, and student loans are much harder to pare down, especially quickly. It can feel frustrating to only make small changes, but those changes will add up if you stick to your plan.
Check your credit.
Your someday home may be a dream on the horizon for now, but it’s never too soon to make improvements on your credit. Once you finally have the cash for a down payment, you don’t want credit issues to keep you from buying a home.
Many home shoppers start exploring the market and deciding how much house they want a year or more before they are ready to buy. There’s no better time to make sure your credit score and history aren’t hiding any unpleasant surprises. Run your free credit report from all three agencies every year and take advantage of any free credit score reports offered by credit card accounts. Use this information to get a handle on late payments, an unhealthy debt to available ratio, or other concerns on your profile.
You probably already know how much you pay each month in credit card payments, student loans, or your car lease. Do you know how much of that amount goes to interest? If you don’t, start examining what you’re paying and look for ways to cut that number down. Paying off your balances as fast as possible is the best way to ditch interest quickly, but not everyone has the means to throw cash at the problem. Instead, explore whether consolidating debts into a personal loan can offer you a better interest rate while you pay down debt steadily. You may also want to inquire with your creditor about getting a few points knocked off your rate. It never hurts to ask.
While much of our budgeting advice focuses on cutting costs, there’s another side to the financial coin that’s just as important. Boosting your budget by making more money is an effective way to make big progress on your financial goals and can also make you a more attractive customer for a mortgage company. Not everyone can take on an extra job, but picking up some overtime pay or asking for a raise can help you make progress quickly. For every dollar you cut from spending, see how you can pair that with a dollar in extra income.
Make a mock “homebuyer” budget.
As you move forward on your spending and saving goals, owning a home may feel closer and closer. If you have your down payment squared away and your credit is in good shape, chances are you’ll be house hunting soon. But before you start calling realtors, research what it costs to own a home in your area. After your budgeting adventures, you know that number will be much higher than your monthly mortgage payment. You’ll also be responsible for costs like:
- Property taxes
- HOA fees
Research the average costs for these items in your area to figure out what kind of home you can afford to buy.
Buying a home is a huge goal, but it’s one that’s within your reach with patience, perseverance, and a commitment to making your budget a proactive tool. Saving for goals happens best with a budget. Soon enough, that set of keys will be well within your grasp.
Linsey Knerl is a personal finance expert, author, public speaker and member of the ASJA. She writes for Upstart and has a passion for helping consumers and small business owners do more with their resources through awareness of the latest financial services.