Buying your first home is a big step. For most people, it’s by far the largest purchase they’ve ever made.
If you’re preparing to buy your first home, you’re probably wondering what you need to do to get ready. Even if you’re already saving money, there are things you can do to save more and get the best deal possible when the time comes.
Pay Off Debt
One of the best things you can do when you’re preparing to buy your first home is to pay off your existing debt. You might not be able to pay off everything. For example, if you’ve got a student loan balance, it might not be possible to pay the whole thing.
That said, you can certainly work toward paying down some of your debts. Here are some suggestions:
- Look at your budget and pay a bit extra toward your credit card balance each month
- If there’s no penalty for paying early, pay a bit extra on your auto loan each month
- Check to see if you can put extra money toward the principal of your student loans
The most important thing is to get your credit cards paid off – and keep them paid off.
Create an Emergency Fund
When you’ve paid off your debt, you should also save up to create an emergency fund. A good rule of thumb is to have three to six months of essential expenses saved, which means enough to pay:
- Your mortgage
- Your utility bills
Having some money in savings will ensure you don’t fall behind in your mortgage payments if you lose your job or run into other financial troubles.
Know How Much House You Can Afford
Before you shop for a home, you should know approximately how large a mortgage you’ll be able to qualify for.
Nerd Wallet has an easy-to-use online calculator, which you can find here. To use it, you’ll need:
- The city or zip code where you plan to buy
- Your net annual income after taxes
- The amount you have saved for a down payment
- Your other monthly financial obligations
- Your credit scores
The calculator will give you the top mortgage you can qualify for. It will also estimate your monthly payment.
Save for a Down Payment
One way to save money when you buy a home is to save enough to make a 20% down payment. If you make a smaller down payment, you’ll be required to purchase private mortgage insurance. That will add about 1% to your monthly mortgage payment.
20% might seem like a lot, but it will save you money in the long run.
Save for Closing Costs
If you can, it’s also a good idea to save 4% of your estimated mortgage to pay for closing costs. Closing costs cover payments for:
- Home inspection
- Credit reports
- Attorney’s fees
- Homeowner’s insurance
These things are all necessary and will help protect you as you purchase your first home.
Saving enough to buy a new home may feel like a burden, but the steps we’ve outlined here will ensure that you’re able to qualify for the mortgage you want – and move into your new home debt free!