Budgeting for Homeownership in the New Year
The new year is a great time to think about budgeting for homeownership. When this is done correctly, you can get into a home faster than you think.
Here are some basic tips as we head into the year:
TIP 1: Get a Clear Picture of Your Finances
This is the starting point for budgeting for homeownership. If you don’t know what you’re spending your money on, it can be hard to execute any budget. There are a lot of numbers to consider here, including the amount in your savings account, any balances on your credit card, your credit score, and whether you have an emergency fund.
Use an online budgeting tool or a simple spreadsheet, and write down where every dollar goes as you work to buy a home. Below is a list of the 8 Best Budgeting Apps for 2022 by Nerdwallet.com:
Mint, for just about everything
YNAB, for hands-on zero-based budgeting
Goodbudget, for hands-on envelope budgeting
EveryDollar, for simple zero-based budgeting
Personal Capital, for tracking wealth and spending
PocketGuard, for a simplified budgeting snapshot
Honeydue, for budgeting with a partner
Fudget, for budgeting without syncing accounts
Be sure to go back at least six months to get a clear picture—even if you can’t account for every dollar spent. Keep your budgeting tool updated so you can see where there might be room to shore up your spending.
When you have a better grip on your finances, it’s easy to see your savings account rise, credit card debt fall, credit score soar, and emergency fund replenished.
TIP 2: Reduce Your Monthly Spending
This is everyone’s least favorite activity, but it’s likely the most important. Evaluate your expenses and see where you can get rid of extras. Perhaps shaving off that super-premium cable package or eliminating cable altogether and moving to a less-expensive streaming service is an option.
Speaking of streaming services, check your credit card and your checking account for automatic withdrawals. You could be being auto-debited for subscription services you’re not using or didn’t even remember you had. You also want to check your insurance premium for your health and car insurance to make sure you’re getting the best rate.
Below are tools that help manage monthly subscriptions services:
TIP 3: “Practice” Making a House Payment
Calculate your estimated monthly mortgage payment (we have some handy calculators here), including property taxes, homeowners insurance premium, private mortgage insurance, homeowners association fees, and home maintenance.
Take that total amount, subtract your current rent obligation, and put the difference in your savings account each month. This serves two important purposes:
First, you get used to the payment ahead of actually paying that amount. This can reduce some of the sticker shock when you purchase a home.
Second, you will have a ready-made account that is building each month toward a down payment and closing costs, as well as moving expenses and furniture purchases once you buy your new home.
Unless you know the exact house you want to buy, chances are you’ll need to guesstimate for numbers like purchase price, interest rate, property taxes, and HOA fees. Online real estate sites can estimate these fees based on your desired homes. APM is also happy to give you a few resources tailored to your budget and financial goals.
TIP 4: Set Up Automatic Transfers
An easy way to establish a healthy savings account is to set up an automatic transfer each month into a specific account earmarked for home ownership. This savings account should be separate from other accounts, with its sole purpose being to help you buy a single family home.
You can schedule this auto-transfer every paycheck or monthly—whatever works better for your budget. If you have trouble keeping your hands off your current savings account, consider creating this “buy a home” fund at a different institution, preferably one that doesn’t make withdrawals too easy.
TIP 5: Build a Strong Credit Profile
When you’re planning to buy a home, one of the first things you need to consider is your credit score. Get a copy of your credit report, and go through it meticulously (you can get a free copy here).
Take the time to correct any collections or judgments and dispute any errors or inaccuracies. If you need help, you can always reach out to an APM Loan Advisor to help guide you through the process.
Another thing to avoid if you’re looking to build a strong credit profile is late payments on a credit card (or other bills, for that matter). There’s nothing you can do about mistakes in the past, but make sure you’re paying attention to this moving forward. You’re budgeting for homeownership now, which means setting strong habits for the future.
A great place to start is with scheduling reminders or setting auto-debits for credit card payments that have hard-to-remember due dates. You also want to review how much credit you’ve used and get a payment plan in place to pay down this balance. What you don’t do is also important, so don’t open any new accounts, and try not to amass any more debt.
Buying a home doesn’t have to be complicated or difficult. A little advance planning here, a credit review there, and a curb in spending can get you where you want to be quickly. You can get there even faster by being proactive about the home ownership process.
If you’re starting to budget for home ownership, it’s also a good time to be meeting with our team to discuss your goals and how we can help you achieve them. A great next step is to get pre-qualified to see how much home you can afford so you have realistic expectations tied to your home ownership goals.