Buying your first home is not only a major life milestone, but it’s also a big financial goal to meet (one that comes with commitment and responsibility). While many consider a home an asset, this investment of your money is a decision to carefully consider before making.

What’s the Cost of Home Ownership?

Keep in mind that the cost of your home goes well beyond the down payment. Other items to factor in include mortgage origination fees, closing costs, principal and interest, homeowner’s insurance, and property taxes, which can fluctuate depending on the yearly assessed value of your property.

Remember to factor in expenses like the cost of utilities (especially if you’re upgrading to a larger living space) and any renovations the house requires if it’s not move-in ready.

Oh, and don’t forget: while a home inspection can help make you aware of any problems with the property, inspectors are human, too. They don’t always spot hidden problems that can cost you big bucks down the road.

And then there’s the regular, everyday stuff: maintaining the interior and exterior of the property, making repairs as necessary, and replacing elements as they wear down and age.

This may not be a comprehensive list and is definitely not meant to be all doom-and-gloom. It’s mean to educate you on the financial realities of homeownership before you jump in.

How to Determine If You’re Financially Ready to Buy a Home

Owning your own place is fantastic — if you’re financially ready to do so. Here’s a quick checklist to help you determine if you have your financial ducks in a row and could feasibly manage that home purchase:

  • Your other financial goals are on track. This means you’ve already established retirement accounts and contribute to them on a regular basis. You should also have your consumer debt under control — or, ideally, you don’t have consumer debt at all.
  • You have a full emergency fund. The general rule of thumb says you need three to six months’ worth of expenses. If you plan to buy a home, you may want to boost your cash savings or create a new fund for house-specific costs (like regular maintenance and repairs).
  • Your credit score is good or excellent. You’ll need great credit in order to be approved for a home and secure a low interest rate. This is crucial; with something as big as a home mortgage, your interest rate can easily cost you an additional hundred thousand dollars (or more!) over the lifetime of the loan.
  • You’ve calculated out how much a home would cost you on a monthly basis. Your total living expenses with your new home should not equal more than about 25% of your current budget.

If you can check these items off the list, it’s time to start thinking about how you’ll prepare to purchase your first home.

And if you’re not quite there yet, that’s okay. Keep looking for new ways to increase your savings and your income.

Questions to Ask Before the Hunt

Once your finances are in order, you need to ask yourself the following questions before house hunting:

  • Do we know where we’d like to live for the next 5 years? Buying and selling a property within five years is typically a losing proposition. The home hasn’t had enough time to increase in value.
  • Do we have job security? It’s difficult to say you’re 100% certain your position at work isn’t going anywhere — but if your work is highly unstable, that might be a red flag. Don’t get into a home you can only afford if you always make your current income or more.
  • Do we have a down payment? You need to have an appropriate amount of cash available to put down on any property you want to buy.

Did you answer “yes,” to all these questions except the last one? If so, it’s time to focus on saving that “appropriate amount” that you need for a down payment.

You need to have at least 20% of the home’s purchase price saved for the down payment. Any less and your mortgage lender will slap you with something known as PMI.

PMI is private mortgage insurance, and it’s designed to protect the lender in case the borrower defaults on their loan. If you show up to the table with less than 20% of the purchase price to put down in cash, the lender will see you as more risky and place PMI on your loan. This is an additional monthly fee on top of everything else that makes up your mortgage payment.

How to Start Saving Up for a Down Payment

If you’ve made it this far, congratulations! With your finances in order and your future goals defined, you’re probably close to buying your first home.

The most critical piece of the puzzle you need now is that 20% down payment. In addition to helping you avoid PMI, a larger down payment means more manageable monthly payments. That’s good news for your monthly budget.

But 20% of a home’s purchase price is still a big number. If you’re ready to start building your first home fund, try one of these strategies for saving up a home down payment:

Establish a special savings fund: This is a big goal you’re working toward, and it deserves its own savings account. Look for a savings account at a credit union or online bank that offers at least 1% of interest. It may not be much, but it’s better than nothing — and it allows your savings to get to work by earning more, too!

Slash unnecessary expenses and save instead of spend: Are you currently enjoying any little luxuries that you don’t really need? Maybe you’re paying $100 (or more) for a nice gym membership — but there’s a bare bones gym down the road that works just as well and only charges $20 per month. Or maybe you’ve been enjoying trips to your local Whole Foods, when you could save by making the switch to shopping at a lower-cost grocery store.

Look for little swaps like these: Change out your expensive habits for cheaper alternatives that still get the job done. Then, track your new spending habits. You should create a surplus, where you’re spending far less than what you bring in. Be sure to transfer those savings to your home down payment fund.

Create a budget and make room for savings: If you don’t already use one, establish a budget and stick to it each month. This makes it easy for you to track — and cut — discretionary expenses so you can save more.

Make sure you include how much you’re saving each month toward your home down payment. You can then track and celebrate your progress, which is a motivating factor all on its own.

Hang on to extra money: Whenever you receive a bonus, gift, or any other kind of “extra” income, put it straight into your home down payment fund. If you feel like you just gotta treat yourself, divvy up the extra cash: put 80% into your savings and spend 20%.

Find ways to increase your income: Feel like your savings progress is too slow? There will only be so much you can cut and eliminate from your current budget. If you’ve hit that wall, look for ways to increase your income.

You might be able to work overtime at work or pick up additional shifts. You could ask for more and negotiate a raise with your boss. Or you could establish your own side hustle and earn extra money in your spare time, outside of your day job.

What questions do you have about buying your first home, or saving up for a down payment?

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