The sharp decline in housing prices from 2006 through the financial crisis of 2008 and 2009 certainly scared a lot of prospective home buyers out of the market.
But in the last few years, real estate prices have stabilized nicely — and in many markets, have rebounded sharply from their lows. Consider that as of December, the median home price in the U.S. was $298,100 according to the Census Bureau — up more than 36% from $218,600 just three years before.
And with the job market still improving and interest rates still relatively low by historical standards, many Americans are starting to warm to the idea of homeownership again.
Of course, while prices have bounced back, the mortgage lending isn’t quite as loose as it used to be. That means many banks are requiring bigger down payments.
So if you want to buy your first home in the near future, that means building up some serious savings.
Here are nine simple steps to help you to buy your first home as fast as you can:
Create a Monthly Budget: It’s hard to spend less if you don’t even know what your monthly expenses are to begin with. So the first step is to take a look at how much goes in and out of your bank account each month, to set realistic guidelines around spending and saving.
Quarantine Savings: Many people have trouble building up savings because they dip into the piggy bank once in a while. But if you do a good job setting a realistic budget, then it’s simply a question of keeping temptation at bay. The best way to do that is to create a dedicated bank account just for your housing fund — free from your regular spending.
Make savings automatic: Once you have a budget and a dedicated account for your down payment, make your savings automatic. Set aside your contribution to this housing fund first, before paying any bills, and you’ll never forget. Even better is if you can set up direct deposit to this separate account for the exact dollar amount you plan to set aside. Savings will happen regularly this way, and you won’t even notice as long as you’ve built a good family budget.
Save in Chunks: If you have a budget and are saving slowly, you have a great start. But you can accelerate the process by socking away 100% of any windfalls like your annual tax return, or by forgoing big one-time expenses like your annual beach vacation for a week in July. It’s admittedly difficult to simply take a pass on items like these, but think of it this way — if you’re only saving a few hundred bucks each week, saving a few thousand dollars shaves almost a year off the time you need to keep up this savings routine.
Work more: Spending less is the obvious way to save, but working more and bringing home more money is also a great way to supercharge your savings. If you are eligible for overtime or additional work, take every opportunity that comes your way. And if you’re not, consider taking a second job on the side even if it’s only a few days or a few projects each month.
Downsize before you upsize: Moving to a one-bedroom apartment from a two-bedroom apartment can drop your rent by 20% to 30% in most areas. If you don’t have kids, it may be a smart move to live small before you buy your first home and then reallocate the unused rent into your housing fund. And an added bonus is that a smaller place will mean fewer boxes to move once you finally do find your dream home.
Save less for retirement: If you have a 401(k) match, it’s still a good idea to save enough in order to qualify for that employer-sponsored contribution. But typically, matches stop at 6%, so saving for a house may mean capping your retirement contributions there and instead allocating the additional cash toward your down payment. Remember, a house is also an asset … so you are simply saving for the future in a different way. Another option for first-time home buyers is to actually use retirement savings in your IRA to fund the purchase. In many cases, you can withdraw $10,000 without penalties from your retirement fund to help fund your first home purchase.
Ask for support: Much like going on a diet, staying on a strict savings plan is much easier with the support of the people around you. If your buddies are always inviting you to happy hour or your sister-in-law invites you shopping each weekend, the temptation and stress are going to be an issue. Make sure your friends and family know how your behavior is changing so they can meet you halfway.
Don’t punish yourself: The math of saving for a house may be straightforward, but the emotions of saving are very complex. If saving feels painful or frustrating every single day, you’re much less likely to be successful at it. So, rather than let the frustration build up after you deny yourself every discretionary expense, take comfort in a simple pleasure once in a while. Cut down on eating out, but consider cooking a fancy dinner once a week at home with premium ingredients. Cut down on going to movies, but perhaps subscribe to Netflix, Inc. (NASDAQ:NFLX) instead. The idea is to save money, not to spend zero, and you will find it much easier to save if you’re actually enjoying your life while doing so.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks.
