How to Save for Your First Home: Tips for Young Adults Ready to Buy
Buying your first home is such a thrilling milestone, but—and I won’t sugarcoat this—it can also feel pretty overwhelming. I remember when I was getting ready to buy my first home. I was excited to finally have a space I could really call my own, but wow, the money stuff? At first, it felt like a big, tangled ball of financial terms and numbers.
If that sounds familiar, don’t worry. I’ve been there, and I can promise you—it’s manageable. Stick with me, and I’ll walk you through the steps that helped me, little by little, make my dream of owning a home a reality.
Here’s what we’ll cover in this guide to help you build a solid financial foundation (and keep the stress to a minimum while you're at it):
- Understanding the costs of homeownership.
- Developing a savings plan that works.
- Saving money where you can and boosting your income.
- Exploring options like assistance programs and FHA loans.
- Staying disciplined with your finances.
- Getting ready to purchase your dream home.
1. Understanding the Costs of Homeownership
Calculate How Much You Need to Save
When I was first starting out, I thought the only thing I needed to save for was the down payment. I couldn’t have been more wrong! Home-buying costs add up quickly, so the very first step is getting a clear picture of all the expenses you’re facing.
- Down Payment: This is the big one. For most homes, this is anywhere from 3% to 20% of the purchase price. I personally saved for an 8% down payment on my first home, which worked out well for me.
- Closing Costs: I’ll admit, I didn’t realize how much this part would cost until my agent walked me through it. These are around 2% to 5% of the home’s price and cover things like legal fees, inspections, and appraisals. It can feel like a lot, but it’s very normal!
- Extras: Don’t forget the smaller stuff. I had to budget for a home inspection, moving costs, and even that first IKEA trip to furnish the place. Trust me, these little things can sneak up on you.
Knowing these costs upfront can prevent unpleasant surprises later. Your future self will thank you for planning ahead!
Consider Your Credit Score
Ah, the credit score. When I started saving, mine wasn’t as high as I’d have liked (no one’s perfect, right?). But improving it can really reduce the interest rates you’ll face on a mortgage. Here are the steps I worked on:
- Paid down my smallest debts first (they call this the snowball method).
- Set reminders to pay bills on time—every. single. one.
- Checked my credit report for errors. It’s amazing how one little error can drag down your score.
Financial expert Liz Weston notes that lenders typically look for a credit score of at least 620 for conventional loans, but a score of 700 or higher can help you get the best rates. Improving your credit score can make a substantial difference in your homebuying prospects.
2. Developing a Savings Plan
Alright, saving for a down payment can feel like trying to climb a mountain… until you break it down into small, manageable steps. That’s exactly what I did—and it worked!
Set a Savings Goal
Once you’ve calculated how much you need for a down payment and other home-buying expenses, set a clear savings goal. This goal should be specific, measurable, and time-bound.
- Example Goal: Set a goal to save a certain amount over a few years by setting aside a fixed amount each month.
- Milestones: Break down the goal into smaller, achievable targets, such as saving $10,000 each year.
Additionally, it’s wise to establish a separate emergency fund with three to six months’ worth of living expenses. This fund acts as a financial cushion for unexpected events like job loss or major repairs, preventing you from dipping into your home savings.
Create a "Home Sweet Home" Savings Account
This trick helped me so much. I set up a separate high-yield savings account just for my down payment. I even named it “Dream Home Fund” to keep me motivated. (Corny? Maybe. Motivating? Definitely.)
- Benefits: Keeps your savings separate from regular expenses, reducing the temptation to spend.
- Alternative Option: Consider a certificate of deposit (CD) for higher interest rates, though it offers less liquidity.
Some banks offer goal-specific savings accounts, which can help you stay focused on your target by labeling your account as “Home Savings” or something similar.
Automate Your Savings
Confession time—I’m not great at “remembering” to save. Automatic transfers saved me from myself. Every payday, I set up a system to move a chunk of money straight into my savings account. It felt like paying a bill to my future self, and soon enough, I didn’t even miss it.
Pro tip? Some banks offer round-up savings programs that stash spare change into your account every time you shop. Those tiny amounts really add up!
3. Cutting Costs and Boosting Income
Now, I’m a big believer that saving isn’t just about cutting back—it’s also about earning more. I worked on both at the same time.
Review and Trim Your Budget
Take a close look at your current budget to identify areas where you can cut back on spending. Small sacrifices can add up over time, significantly boosting your savings.
- Areas to Cut: Dining out, unused subscriptions, entertainment, and non-essential shopping.
- Tools: Use budgeting apps to track expenses and identify additional savings opportunities.
Even small changes to your spending habits can make a big difference in your savings over time. Regularly reviewing and adjusting your budget can help you stay on track.
Boost Your Income
If your current income isn’t enough to meet your savings goals, consider ways to increase your earnings.
- Options: Ask for a raise, take on a side hustle, or freelance.
- Popular Side Hustles: Ridesharing, food delivery, freelance writing, graphic design, online tutoring.
Deposit any additional income directly into your home savings account to help you reach your goal faster. Allocating bonuses, tax refunds, or other windfalls to your savings can also accelerate your progress.
4. Exploring Down Payment Assistance Programs
Research First-Time Homebuyer Programs
Many states, cities, and local governments offer down payment assistance programs for first-time homebuyers. These programs provide grants or low-interest loans to help cover the cost of a down payment or closing costs.
- Eligibility: Typically based on income limits and completion of a homebuyer education course.
- Benefits: Grants or deferred payment loans that reduce upfront costs.
First-time homebuyer programs can significantly reduce the financial burden of purchasing a home. Additionally, some employers offer homeownership assistance as part of their benefits packages, so check with your HR department to see if any such programs are available to you.
Look Into FHA Loans
Federal Housing Administration (FHA) loans are another option for first-time homebuyers. These government-backed loans require a lower down payment—typically around 3.5%—and have more lenient credit score requirements compared to conventional loans.
- Pros: Lower down payment, easier qualification.
- Cons: Requires mortgage insurance, which increases monthly payments.
FHA loans are popular among young adults with limited savings or less-than-perfect credit. However, be aware of loan limits and the additional costs associated with mortgage insurance.
5. Maintaining Financial Discipline
Avoid New Debt
As you work toward saving for a home, it’s important to avoid taking on new debt. Large purchases on credit or financing a new car can increase your debt-to-income ratio, making it more difficult to qualify for a mortgage.
- Focus: Pay down existing debt and avoid opening new lines of credit.
- Timing: Lenders often review your credit report just before closing, so avoid any major financial changes.
Maintaining a strong financial profile improves your chances of securing a favorable mortgage rate and keeps your homebuying process on track.
Stay Focused and Patient
Saving for a home is a long-term goal that requires discipline and patience. It can be tempting to cut corners or rush the process, but it’s important to stay focused.
- Stay Motivated: Keep your eyes on the prize and celebrate progress along the way.
- Adjust as Needed: If you hit a financial setback, revise your savings plan and keep moving forward.
Remember that the sacrifices you make today will pay off when you’re holding the keys to your first home. Visualize your goal by creating a vision board or keeping a photo of your dream home as a reminder of what you’re working toward.
6. Preparing for the Homebuying Process
Get Pre-Approved for a Mortgage
Once you’ve saved enough for a down payment, the next step is to get pre-approved for a mortgage. Pre-approval gives you a clear idea of how much home you can afford and shows sellers that you’re a serious buyer.
- Process: A lender reviews your financial information, including your credit score, income, and savings, to determine how much they’re willing to lend.
- Advantage: Having a pre-approval letter gives you a competitive edge in a hot real estate market.
Pre-approval also helps you focus your home search on properties within your budget, avoiding the disappointment of falling in love with a home that’s out of reach.
Work with a Real Estate Agent
A knowledgeable real estate agent can be an invaluable resource as you navigate the homebuying process. They can help you find homes that meet your criteria, negotiate with sellers, and guide you through the closing process.
- Criteria: Choose an agent with experience in your target area and a good track record with first-time buyers.
- Support: Your agent can connect you with other professionals, such as home inspectors and mortgage brokers, ensuring you have the support needed throughout the buying process.
A good agent helps you understand the nuances of the local market, such as pricing trends and neighborhood growth, so you can make an informed decision about where to buy.
Take the First Step Toward Homeownership
Buying your first home may seem daunting at the start, but step by step, it becomes achievable. It’s about more than finances—it’s about creating a space that’s entirely yours. I’ll never forget walking through my front door for the first time. All the saving and planning was worth it for that moment.
If I could do it, trust me—you can too. Stick to your plan, stay focused, and don’t hesitate to lean on tools and resources along the way. Keep your eyes on the prize, and sooner than you think, you’ll be unlocking the door to your first home.
