How Millennials Can Save for Their First Home
Guest Post By Jennifer Riner with Trulia.com
Planning your first home purchase is financially and emotionally complicated. Juggling student loan debt, car payments and astronomical renting costs leaves little room for savings, especially if you strive for some form of a social life.
With a little savviness, saving for your first home is made easier. Now is the time to buy if you’re interested in diminishing your monthly housing costs, given today’s historically low interest rates.
Ready to make the switch from renting to owning a home in Barrington, IL? Consider the following tips on how to save up for your first home purchase:
- Minimize expenses
- If you’re struggling to gather a down payment based on your monthly income and current expenses, now might be the time to let go of the unnecessary. If you’re looking for a new apartment in between, rent the most economical place on the market that’s in close access to work to cut down on commuting costs. That’s not to say you should compromise safety for cost, but letting go of the high-rise apartment with pool and gym amenities pays off in the long run.
- If you live alone at the moment, find a roommate. The cost of a two-bedroom unit split in half is typically cheaper than a one-bedroom on a single income. Any extra bit counts when you’re getting ready to purchase your first house. First-time buyers are often shocked at the unexpected fees, including HOAs, closing costs, inspections, appraisal fees and insurance. Save as much cash flow as possible, including an emergency maintenance fund. Most financial advisors recommend your home emergency fund include approximately 1-3 percent of your home’s purchase price.
- Shop around for your rate
- Half a percentage point difference in your interest rate could mean thousands in (or out) of your pocket over the life of a loan. In San Francisco, where the median home price hovers around $792,600, half a percent in interest could cost you $43,000 in the long run. For a $300,000 home, the difference is $26,000. Experts recommend homebuyers obtain at least 3-4 quotes before settling, but a little extra time investment and due diligence during the mortgage shopping process can’t hurt. We’re confiendent that the Magiera Mortgage team will turn out to be the best financial option for you.
- Prioritize location over amenities
- Currently, the national real estate market is seeing seriously low inventory in the entry-level price range. Low supply is pushing first-time buyer demand through the roof in many markets. A swanky, modern place does not come cheap, even if the square footage is lacking. Look at the best investment based on current list price, neighborhood and school ratings. Then, put your personal touch on the home gradually. As long as the layout, location and architecture is to your liking, everything else can be fixed. Plus, you’ll reap the financial rewards down the road (as long as you don’t over-upgrade), especially if you buy in an up-and-coming market. Be sure to hire a qualified real estate agent who can help you gauge neighborhoods, assess market value and represent your best interests during closing.
- Consider using retirement funds
- Although individuals under 59.5 years of age can’t touch their IRA accounts without facing a 10 percent early withdrawal penalty, first-time buyers get a pass. You can withdraw $10,000 – or $20,0000 for couples – from an IRA without the penalty to either buy, build or rebuild your first house. But, taking money from a retirement account could compromise your future financial security. Most financial advisors recommend to leave your IRA alone, however the choice is ultimately yours.
While first time homebuyer tax credits no longer exist for today’s buyers, your mortgage interest can be deducted after you purchase your first home. Plus, you can deduct property taxes come next April. Buying a home could ultimately save you money, as long as you’re ready to endure the often uncomfortable saving process.