Working toward long term goal of home buying

First time home buyingHow long in advance should you be preparing to buy your first home?  There are a few common obstacles to purchasing property:

  1. Accumulating the down payment 
  2. Cleaning up or creating a good credit history
  3. Deciding your priorities
  4. Budgeting so that you can live within your means while saving and after buying your home

(1) For most people, accumulating the down payment means saving money.  This is very challenging, especially when people are accustomed to living on 100 – 105% of their income!  This is an extremely common phenomena.  It is always tempting to want to “reward” yourself with expensive dinners, lavish travel, luxury cars and other perks that make you feel like you have arrived. It is harder, but smarter, to see the reward as the fruit of discipline and to chart a goal and work toward it steadily.

How much do you need to save?  There are a lot of variables here.  Getting 20% down means saving a lot on the financing costs down the road.  But if you can purchase with a small down payment (really hard to do with multiple offer situations), you can get there faster and perhaps will pay less than if you wait until you have a bigger down.  A few years ago I met someone who saved diligently for more than 20 years to buy a home.  Think about what has happened to the cost of housing in that time!  Prices have about doubled since then.  So don’t spend too long saving, lest inflation eat away at any benefits you get from the larger down payment.

It should be noted that if you are able to buy with FHA backed financing, your down payment can also be gifted from family and friends.  That can speed up the time frame.  (My 20-something kids will find this of particular interest, I am sure!) (more…)