First-Time Buyer? Here’s 5 Smart Ways to Save for a Home

Photo credit: Getty Images

Philly’s real estate market is red hot right now. With increasing pressure to buy before prices continue to rise, you might be feeling the heat. But buying your first home is a big step, not to mention, expensive. With a million “what ifs” running through your head it can be hard to think clearly and financially savvy about making your move. Most first-time buyers struggle with letting their emotions get the better of them. The idea of their dream home outweighs the impact it could have on their finances. To help you make the switch from renting to owning responsibly, we spoke to Wendy Monaco, Vice President of Allied Mortgage Group to set some home buying myths straight and share tangible tips to land you on the property ladder.

Here are five factors that can help you save smartly for your first home.

Talk to a Lender First

Before you start looking at homes (even online!), or searching for a realtor, you should reach out to a lender. “My job is to put people in homes and educate them,” Wendy Monaco says. “That means, I’m here to help and guide you in the right direction any way I can.” Lenders, like Wendy can help you set up a savings timeline and realistic expectations on what you can spend on your starter home. They’ll pre-approve you for a mortgage and help you sort through any unknown issues that could be affecting your credit score—like old cable bills, leases, student loans and credit cards that are bogging down collections. Even if you’re not ready to buy today, lenders can help you responsibly plan for six months to a year down the line. They’ll ensure you’re pre-approved for a home loan and can even put you in contact with a Realtor in your desired region.

Downsize Before You Upsize

In order to save the most money as quickly as possible, consider downsizing before you upsize. If you’re in a two-bedroom apartment, move into a one-bedroom or take in a roommate. The savings will quickly add up. An even better option—move back in to your parent’s house for a few years. A wise man once said, “To move out of your parent’s basement, you must first move in.” Just kidding, that was actually from a College Humor sketch but the sentiment stands. “If you can stay home, you should for as long as you can,” says Monaco. “With student loans and high rent prices, it’s very difficult to get ahead.” Plus, maybe mom will whip you up some nice home-cooked meals every now and then!

Do Your Homework

“There are more first-time home buyer programs than ever,” insists Monaco. By doing proper research and working with a local lender you’ll be able to see which ones you might qualify for. First-time buyers could qualify for the HomeReady program—an initiative that allows buyers to put the minimum down payment down of three percent—if they make less than $83,200, the median income of the Philadelphia area. Areas like Upper Darby offer grants to first-time buyers if their income meets set guidelines. Or if you’re willing to stray a little farther out of the city into areas like northwest Montgomery County, southern Chester County and Berks and northern Bucks County (places that are consider protected USDA verified areas), you might qualify for a USDA loan which is 100 percent financing and no down payment. There are income restrictions with USDA loans as well, so be sure to talk to your lender about guidelines.

401(k) All The Way 

A savings option most new buyers don’t know about is that if they really want to get into a home, they can tap into their 401(k) plans. Some retirement savings plans allow you to borrow from your account to buy a house. Certain plans allow you to borrow up to 50 percent of what’s in your 401(k). Others allow you to make a withdrawal from your account, penalty-free. Essentially, you’re borrowing against your own money so as long as you’re responsible and reasonable, it could be a great option for you. It’s important to remember that houses are an asset and real estate is a relatively safe investment. You’re still saving for your future, just in a different way.

Consider All of the Costs

Buying a first home is more than just saving for a down payment, you need to factor in the sometimes-forgotten upfront costs like paying for an inspection, radon and termite tests. These can easily cost you between $450 and $750. “I always advise buyers to have a cushion in case anything goes wrong,” Monaco suggests. Thankfully most local lenders have a network of helpful household experts like Realtors, inspectors, insurance agents and contractors who they can connect you with.

Lenders like Allied Mortgage Group also offer homebuyers incentives like a one year comprehensive home warranty, which would cover you in case something went really wrong. But the most important thing to remember is that buying a home isn’t all about spending— owning a home comes with perks as well, like bigger tax breaks. “Just by owning a house, you’ll get great tax benefits,” says Monaco. By owning a home you’re paying real estate taxes and mortgage interest, which is deductible, and could help boost your refund. With a tax refund, you can prepay some of your home loan or start to rebuild your 401(k) savings.

Thinking about buying a home? Get pre-approved (for free!) today at alliedmg.com.