The Biggest Mistake You Can Make While Saving to Buy a Home

money mistakes

When you are in the market to buy a home, the more savings you have, the better. Between closing costs, your down payment, and other home buying expenses, the out of pocket cost of buying a house can add up. It can be tempting to use your hard earned savings, a retirement fund, or even your emergency funds in order to have sufficient funds for a down payment. But cleaning out your savings to buy a home is a very bad idea—and here are three reasons why.

1. Unexpected Expenses

After you buy a home, you will need a strong emergency fund more than ever before. Your emergency fund should include at least three months of expenses saved in the event you lose employment. For a homeowner, that’s at least three months of mortgage payments, homeowner’s insurance, home maintenance, utilities, and all the little expenses that add up when you own a house. If you use your emergency savings to buy the house, you may not be able to absorb the costs of any unexpected repairs that pop up down the road. Tapping into your emergency fund to pay for your down payment or closing costs could leave you high and dry.

2. Continuing to Save, Even After Becoming a Homeowner

If you have to clean out your savings accounts in order to purchase a home, chances are you can’t actually afford the home in the first place. As soon as you sign your name on the closing paperwork, you’ll be responsible for a whole heft of new expenses, including your monthly mortgage payment, homeowners insurance, property taxes, indoor home maintenance expenses, exterior maintenance (ranging from lawn care to snow removal and SO MUCH in between), and utilities. Will you still be able to contribute to your savings account on top of these new expenses? While you may be able to afford the out of pocket expenses to buy a home on paper, if buying the home means you cannot afford to keep saving in the future, it isn’t a good financial choice. You are better off waiting to buy a home until you are in a position to purchase a home without touching your emergency savings AND keep saving.

3. Becoming “House Poor”

If you’re like most Americans, your savings fund isn’t just for emergencies—it’s also where you build up enough money for vacations, to travel to visit family, or to refresh your spring wardrobe. A house might seem worth the sacrifice now, but know that the excitement of a new home will wear off just like everything else. You don’t want to be scraping by to survive and lose the ability to enjoy other aspects of your life. Roughing it out in an affordable rental for a few more years while you save more money can allow you to continue living your preferred lifestyle while still working towards the eventual goal of homeownership.

Buying a home is exciting and it can be tempting to go for broke to finally have your own place. We recommend that you keep building your savings until you are truly ready to purchase a home. Not sure if you’re ready? Reach out to Veitengruber Law and we can tell you straight up if you should go for it now, or if you’re truly better off waiting.

10 Personal Finance Challenges NJ Millennials are Facing

According to a recent survey done by Credit Karma, 61% of millennials said money was their #1 source of daily stress. Having grown up or entered the workforce during the Great Recession, millennials face some unique financial challenges. Even rising wages cannot keep up with the ever-increasing cost of living for this group of young consumers. When it comes to personal finance, NJ millennials face a number of burdens specific to their generation.

1. Higher Than Ever Student Loan Debt

Crushing student loan debt is so universal to the experience of millennials that it has spawned countless think pieces, endless memes, and has even influenced national political campaigns. The average student loan debt per graduate is $17,126 according to Business Insider. The number of students taking out loans to pay for college has increased by 10% since 2000 and students are borrowing more money now than ever before to afford their education. This kind of debt means millennials are often entering the workforce with major deficits.

2. Saving for a House Takes Longer

As home prices continue to climb, millennials buying homes today will pay an average of 39% more for their first home than baby boomers did. Home ownership for millennials is at an industry low as millennials avoid taking on more debt and spend years saving up for that 20% down payment. Buying a home has become less of a next step and more of a dream for millennials. This is true of many “milestones” ranging from buying a car to getting married and having children.

3. Living Paycheck to Paycheck

Besides struggling with more debt and higher costs of living than previous generations, millennials are also often unemployed or underemployed. 44% of recent college graduates report struggling to make ends meet with dead-end and low paying jobs. Making enough money to get ahead of their expenses is increasingly difficult. The “side hustle” has become a way for millennials to use their skills to make money to supplement their regular income, but even with a supplemental income, millennials continue to struggle to build wealth.

4. Caring for Elderly Parents

Despite earning less, millennials are spending much more on care for aging parents than previous generations. On average, millennials who pay for elderly care spend 27% of their income on care services. This is coupled with the fact that many millennials (53% according to the Country Financial Security Index) have had to receive financial assistance from parents or family members since turning 21. This generation is ill prepared for the burden of caring for elderly parents.

5. Poor Planning for the Future

Too many millennials have little or no savings, struggle with being un-insured or under-insured, and tend to put off retirement planning. Most millennials are only saving on average 5.3% of their income. Even if millennials are working towards the suggested $1 million retirement savings, things aren’t looking good for them. Based on inflation rates, $1 million dollars today will have the spending power of $306,000 in 40 years. These numbers mean many millennials will be facing poverty level finances in their golden years.

6. Ignoring Credit Scores

Many millennials don’t pay attention to their credit score until they need it to buy a house, a car, or to get a personal loan. It can be easy to ignore your credit score, and many generations struggle with bad credit. But for millennials, who are already dealing with higher debt and younger credit histories, it is especially important to spend some time working on building better credit. Good credit can be the pathway to making some of those sought-after big purchases millennials keep putting off—like buying a house.

Are you a millennial? Share in the comments what financial hurdles you’re experiencing, especially if it wasn’t mentioned in today’s post.