Planning for the Future: When to Start Saving for a New Home

You don’t have to be the tinfoil hat type to start preparing for the future—it’s coming, after all. And if you’re thinking about buying a new home in the next few years, it’s not too early to start putting money away for it. There’s more to it than cutting down unnecessary expenses and saving up, though—sellers and banks look at several factors to determine your eligibility for home ownership.

Before you start that new savings account, ask yourself a few questions to see if you’re in the market for a home at all:

Do you have a safety net? You should have 3 to 6 months’ worth of regular, fixed expenses saved up—this means rent or house payments, utilities, insurance, loan payment, etc. A safety net is crucial to being able to afford a home.

How’s your credit? If you’ll need a loan to pay for the house initially, you’ll need to work to build your credit above a score of 620. (Yes, seriously.) And for most loans, you’ll actually want something closer to at least 740.

Is your relationship stable? If your partner probably isn’t going to be around for much longer, it’s probably not a good time to start paying for a home. Divorces and splits get really messy—both emotionally and financially.

Okay, so if you’ve got a safety net, good credit, and a stable relationship status, here’s what the timeline for saving for a new home looks like if you’re smart.

Adjust your budget. Print out your bank statements from the past year, plus any receipts you’ve saved, and make a spreadsheet of your spending. Once you’ve got everything entered into the spreadsheet, categorize expenses by fixed (unchangeable) and discretionary (changeable). Think about how you can reduce or get rid of discretionary expenses—making coffee at home instead of grabbing it on the way to work, for example, can save you at least $10/week. Put the costs you cut into a house fund. Whenever you get a bonus at work or a tax refund, put that into the house fund.

Give yourself an advantage. You need to have a savings goal, so make it a minimum of 10 to 20 percent of the estimated price of your future home. As a buyer, you shouldn’t be responsible for closing costs, but having more than the minimum amount ready for a down payment gives you a real edge over other potential buyers—and means your mortgage payments will be considerably less. Try not to rely on the prospect of loans—if you need a loan to make a payment on the house, you probably can’t afford it.

Keep it real. Attend open houses and scour the classifieds. You’ll feel like a real home buyer, and you’ll get a better idea of regional costs of living.