15 Money Saving Tips for Future Home Buyers

Summary: This article offers money-saving tips and ideas for future home buyers. It's important to save money before you enter the housing market, and this lesson explains why.

Saving money is an important first step to the home buying process. But many buyers don't even think about this critical step until it's too late. One day, they decide to buy a house. So they start talking to mortgage lenders, and they find out they need a down payment on the house. They also need money for closing costs. If only they had thought about this sooner, and planned accordingly.

That's where today's lesson comes in. This article is for those of you out there who plan to buy a home within the next few years -- not right away, but down the road a bit. If you fall into that category, let me offer you this piece of advice. Start saving your money now! The more money you can save between now and the day you apply for a mortgage loan, the better.

I'll get to the money-saving ideas and tips in just a moment. But first, let's talk about what kind of funds you will need when buying your first house.

The Various Home Buying Expenses

Here are some of the things you should be saving money for, within the context of home buying:

1. Down Payment -- This will be the largest expense when buying a house. The down payment varies based on the size of the loan, the lender, and the type of loan program you are in. For an FHA home loan, you can pay as little as 3.5% down. For a conventional mortgage, you'll probably have to pay closer to 20% down. On a $200,000 loan, these percentages would come out to $7,000 and $40,000 respectively.

2. Closing Costs -- These are the various fees and expenses you'll have to pay when you close on the house, the last step in the home buying process. Average closing costs in the U.S. run around $2,700. In a buyer's market, the seller will sometimes offer to pay part of this out of the proceeds they make from the sale (but don't count on it). Make it part of your money-saving strategy from day one.

3. Moving Expenses -- Will you be relocating from one city to another? Are you hiring movers? Renting a truck? Do you need to purchase furniture for your new home, or make any repairs or adjustments to the property? In addition to these things, there are many unforeseen expenses that pop up along the way. That's why my top money-saving tip for home buyers is to "save early, and save plenty."

Money Saving Ideas for First-Time Buyers

Now you can see the importance of saving money early on, if you plan to buy a home in the next few years. Most people can only afford to put a little bit aside each month, so you need to start well in advance of buying a house. The more time you give yourself the better.

Here are some tips and ideas to help you save money for your future home:

1. First and foremost, define your money-saving goals. By putting a plan on paper, you'll have a target to shoot for. How much money do you want to save, and over what period of time? How much do you think you'll need to put toward a house someday? Define these numbers, and you'll know how much you need to save each month.
   
2. Set up a "housing fund" for yourself. This can be a separate savings account at the bank where you currently have an account. This is where you'll put a little extra money each month, to prepare for the home-buying expenses we talked about earlier.
3. You might even want to set up an auto-transfer with the bank, so a pre-determined amount goes into your housing fund each payday. Most banks offer a service like this, and some employers will allow you to split your paycheck into two accounts. So you can do this in several ways.
   
4. Create a budget for yourself. You need to find out how much money you are spending each month, and where that money is going. There are two reasons for this. You need to know how much you can put aside each month, and you also want to spot any wasteful spending habits.
5. Subtract all of your monthly expenses from your net monthly income (after taxes). The amount you have left over is what you can put toward your house fund each month. If it's a very small amount, then you need to find a way to cut down on your monthly expenses -- as a way of channeling more money into your house fund.
6. How often do you eat out? This is one of the first things you should address when saving money for anything. Dining out can be expensive, especially when you do it several times a week. If you can cut back in this area by eating in more often, you'll have a lot more money to put toward your house fund each month.
7. Stop buying stuff you don't need! This seems like a simple money-saving tip, but you'd be surprised at just how powerful it is. Whenever you're about to make a purchase, ask yourself this question: "Do I really need this?" More often than not, the answer will be no. And the more you refrain from making unnecessary purchases, the more money you can put toward your future house.
8. Check out Clark Howard's website (www.ClarkHoward.com) or buy one of his books. He is often referred to as "America's money saving expert," and for good reason. I've seen a lot of so-called experts on TV, but Clark is the real deal. He has a weekend TV show on CNN, a radio show that streams through his website, and several books. You can plenty of money-saving tips and ideas from Clark.
9. Can you save money by combining your cable, Internet and phone service? Many companies offer deals on "bundles" that can lower your overall monthly payments. Take a look and see if this is a viable option for you.
10. In addition to money-saving tip #8, you might also want to shop for a different phone/internet provider. It's a very competitive industry in which companies frequently try to under-cut their competitor's pricing. So keep an eye out for TV and mail offers from other phone-and-Internet bundle providers.
11. Car insurance is another highly competitive industry. Shop around for a better rate on your policy, and you'll probably find one. This can help you save money each months, and you can put those extra funds into the home-buying account you set up at your bank.
    
12. Shop for a better rate on your credit card. If you are paying a ridiculous interest rate on your card, like so many Americans these days, you could save a lot of money by transferring the balance to a lower-interest card. Just be sure to read the fine print with the new card issuer, before you transfer the balance. Look before you leap.
13. Examine your cell phone plan and your phone usage habits. Are you paying for more than you need? Do you only use a fraction of the minutes you are allotted each month? If so, you may be able to drop down to a less-expensive plan. This is another money-saving idea that may be an eye-opener for you.
14. By making small changes to your energy usage at home, you can easily save $100 or more in utility costs each month. Turn off lights in unoccupied rooms. Use ceiling fans or floor fans in the summer, to cut down on your A/C usage (especially at night when you don't need to cool the entire house or apartment).
15. You can lower your grocery bill by purchasing store brands, instead of national brands. You can also shop more frequently to cut down on food spoilage and waste. Americans throw away a disturbing amount of food every year -- such a waste of money and resources.

I hope these money saving tips and ideas put you in a better position to buy a house some day. Remember, save early and save plenty. Just by making smart choices in your daily life, you can put extra money aside without sacrificing your quality of life.

Lacking funds for down payment and closing costs is one of the biggest obstacles first-time home buyers encounter. You can overcome this obstacle by following the advice offered in this lesson. Good luck.