The Easiest Ways to Save for Your First Home

As most people have to borrow money to purchase a home, one might wonder why one would bother to save for a home at all.  As it happens, there are actually some major benefits of saving for a home, even if one must borrow the bulk of the money needed to make the final purchase.

Saving money before purchasing a home and taking out a loan can help you get better interest rates, have lower monthly loan payments once you make your purchase, get instant equity in your home, and spend less money on interest.  By saving up before buying a home, you can also find yourself on firmer financial footing when you take the purchasing plunge, which will reduce your chances of encountering financial problems in the future.

Building up a nest egg for a future home need not be difficult.  Here are some easy tips on saving up for a home that are sure to help you get started:

If you have credit card bills to pay or other consumer debt to pay off, there is no point in starting a  home fund until you have these taken care of.  Why?  The interest you are paying on those loans is, in all likelihood, much higher than the interest you could get in a savings account.

Before doing anything else, get rid of your debt.  Once you have done so, the prospect of saving makes more sense, and you'll also be able to work your way to a better credit score, which can help you get better mortgage rates in the future.

Create a special fund dedicated to your future home. Make this fund untouchable - it is not to be raided for personal splurges, vacations, gifts, or anything else save serious emergencies (e.g. an unexpected illness, sudden unemployment, etc...).

Put this nest egg for your future home in an account that gets a good interest rate - not your checking account, but rather a savings account or money market fund.  You might even consider putting bits of your home fund into CDs if the rates are good.  The extra benefit of doing so is that it makes the money inaccessible so you will be less likely to raid it in moments of weakness.

I would, however, avoid investing this fund in risky stocks or funds.  If you are young and saving funds for retirement, aggressive investment strategies may be smart as they have a higher earning potential and you'll have time to recover from financial losses, however as you are more likely to buy a home sooner rather than later, it is better to be conservative with these funds.

Your home fund is not going to pay for itself.  You must regularly siphon off funds toward the big purchase, and it is best to do so in a disciplined way.  You might, for example, promise yourself that 10% of your after-tax, disposable income every month will go toward your home fund, or that you will set aside $200 every month for that savings account.  Stick to that goal, and try to condition yourself into believing that those funds would not be available to you anyway - simply consider them to be already allocated and unavailable.

This can help fight any temptation to spend that money on clothing, vacations, or some other form of instant gratification in the meantime.

Saving money is not easy, especially in today's world where it is exceedingly common to spend beyond one's means and never save for anything, let alone a home.  To keep yourself motivated, establish milestones and saving goals toward which you can work.  When you reach a milestone, celebrate - perhaps by going out to dinner with friends, treating yourself to a fun movie or outing, or doing something else pleasant and agreeable.  Simply by acknowledging your hard work, you will find it easier to keep up your hard work.

Before you know it, you will have reached your goals, and shall be all the more empowered when you finally purchase a home!