When you've been in lockdown for weeks, it's natural to start fantasizing about moving. The idea of being somewhere else — let alone in a spacious house with amenities — sounds pretty appealing right now.
But the logistics might be tricky, especially given how the coronavirus crisis has upended people's future plans.
How far out should you start saving for a house? What should the timeline look like? Should you be putting money away now if you're years away from actually buying real estate?
The answer is yes, according to Jackie Boies, the senior director of housing and bankruptcy services at Money Management International. Saving early allows you to put funds away and prepare for the challenges I’ll face as a homeowner.
“Please, please start now,” she says. “Several years away is absolutely the perfect time to start.”
Boies says the more time you have to prepare, the more pleasant the home-buying experience will be. Even if you don’t end up using all the cash you set aside for the down payment, having the money on hand will help you in your decision-making process. (Think: ”How much home can you afford? Where do you want to buy? What kind of loan do you want?”) You could also use any leftovers to outfit the new house. (Think: new curtains, a lawn mower, this futuristic TV that looks like a painting.)
“If you think that you will ever buy a home, it’s never too soon to start thinking about it and start saving for it,” Boies says.
Skylar Olsen, senior principal economist at Zillow, says it’s more challenging to save for a down payment now than it used to be… and that was true way before the coronavirus hit.
She ran through some quick math. The median home value in the United States is about $250,000, and the most recent estimate on median household income is roughly $63,000. If you plan for a down payment of about 20%, that’s $50,000. If you were to save 10% of that $63,000 salary a year, it’d take you nearly eight years to reach your desired sum.
A couple of decades ago, achieving that goal went a lot quicker. Home values have outpaced income, so young people are getting creative. A 2019 Zillow survey found that 43% of first-time buyers with a mortgage relied on gifts and/or loans from friends and family in order to afford their down payments.
To prepare now for that eventuality, you may want to look up average house prices in specific locations you have your eye on and work backward to figure out how much you’d need to put away. You also might want to start a conversation with relatives and look at what sorts of things you're willing to sacrifice in order to buy a home. Would you be OK with cutting back on entertainment spending, getting a side hustle or canceling a vacation?
Another way to accelerate your home-buying timeline is to start researching the different types of loans, according to Luke Babich, the co-founder of Clever Real Estate. Babich says options like Federal Housing Administration loans, which allow people to finance homes with down payments as small as 3.5%, may work for you.
“It’s worth calling a couple of banks and mortgage lenders in your area to see what’s available,” he says.
Babich also recommends considering buying a property to rent out and generate revenue that I can then put back into my real estate interests. It’s a numbers game.
“Don’t let your savings timeline be the thing that’s holding you back from buying,” he adds. “You should know when you want to make the life move to buy, and plan around hitting that target.”
Bottom line: Given that it’s probably going to take several years to save up the amount of money you'll need for a down payment, you should start putting cash away now if you can. At the very least, you should consider what your long-term goals are and begin preparing for them mentally.
Even if you can’t afford to bulk up your house savings account right now, Babich says you can take this time to work on your credit score. Paying bills on time and building out your credit history will pay off later on.
“When it comes time to take out your loan and buy your dream house with your cute husband, it’s going to matter a lot what your credit score is,” he says. “Suddenly lenders want to give you their time, they want to give you tons of advice, and you get really good rates.”