Buying a house is one of the most important decisions you’ll make during your lifetime. After all, your house is where you’ll spend most of your days and raise a family, whatever family means to you.
So, it’s no wonder many of us start thinking about how to save for a house as soon as we land a stable job.
Unfortunately, saving can seem like an impossible endeavor if you’re left with an almost-empty bank account after paying the bills and other necessities.
With that in mind, we bring you plenty of practical tips so you can start planning your dream home in no time.
Step 1: Set Realistic Goals and Make a Plan
When it comes to such big purchases, making a solid plan and sticking to it is the most important step. The main things you’ll need to save for are:
- The down payment — This is the money you pay upfront when you wish to invest in mortgages to buy a home. Down payments vary by mortgage type and lender, but they may be as low as 3%.
If you need help, a down payment calculator can help you determine how much you’ll need to save.
- Closing costs — Fees you pay to finalize your mortgage amount. These are usually 2–5% of the loan.
- Extra expenses — These include moving expenses but also small improvements your home might need to be perfect.
Step 2: Build a Better Budget
Considering what a big purchase buying a house is, your next step is to evaluate and organize your budget. Saving for a house might seem impossible if you don’t know where your money goes every month.
Start by writing down your monthly income (include your partner’s income, too, if they’ll be contributing to the down payment). Look at your monthly bank statements and credit card payments to determine what you spend the most on.
Set aside money for necessities, such as your student loans and monthly utilities. Then, calculate how much you spend on non-essential things, such as entertainment, ordering food, etc.
After categorizing your expenses, decide where you can cut costs — set a realistic budget for every category, and stick to it. Also, set aside a fixed amount of money for your down payment.
If budgeting scares you, try using an online budgeting app to help you save money. You can also look into online financial institutions, such as One Finance, that offer financial advice and saving tips.
If this is something realistic for you, you can also hire a financial advisor.
Step 3: Consider Downsizing
After you analyze your budget, the best way to save for a house is to downsize. Downsizing simply implies reducing your expenses and living below your means while you save up for a home.
Some of the ways you can do this include moving to a smaller apartment or cheaper area, finding a roommate, or moving in with a family member.
Now would also be the time to review some of your financial decisions. If you’re prone to impulse buying, this might prompt you to stop doing so. The same goes if you often eat in restaurants or order takeout.
You might be surprised by all the ways you can save money for a house if you pay attention to what you’re spending it on.
Step 4: Find a Side-Job
Welcome to the world of gig economies! Today, it’s easier than ever to earn some extra cash. The best thing about it is that you can always find a side job related to your hobbies or talents.
So, if you enjoy creative writing, photography, or drawing, find a way to cash in on your talents.
Furthermore, drive-sharing platforms such as Uber or Lyft are ideal because they allow you to work as little or as much as you want. If you work during the day, consider picking up night shifts or working on the weekends.
Similarly, if you’re a pet lover, you’ll find that pet sitting can be a very lucrative opportunity. Not to mention that spending time around animals while you save for a home can be both fun and rewarding.
Step 5: Automate Your Savings
With all the extra money coming in, you might be tempted to spend it. This is why it’s important to set up automatic transfers from your checking account to your savings account.
Find a high-yield savings account to protect yourself from inflation, or you can look into money market accounts or certificates of deposit.
Step 6: Reduce Your Debt
Before you start home saving and applying for a mortgage loan, find ways to reduce your debt on credit cards, student loans, auto loans, and personal loans.
The first thing lenders look for when you’re being considered for a mortgage is your debt-to-income ratio. In short, the more debt you have, the less favorable you are as a candidate for a mortgage.
So take some time and divert some of your extra income towards reducing your debts.
Step 7: Ask for a Raise
If you feel you deserve one, saving for a house is the perfect opportunity to ask for a raise.
In order to increase your chances, make sure to schedule a meeting with your boss during performance reviews or after a big project that went well. Prepare performance data and your project results, as well as a list of tasks you’ve taken on.
Make sure to show confidence and determination but also enthusiasm about the possibility of picking up more tasks for a raise.
Step 8: Temporarily Invest Less In Your Retirement
Naturally, this only applies if you’re young with plenty of time before retiring. If you actively contribute a percentage of your income to a retirement plan, like IRA or 401(k), try diverting this money to your down payment savings instead.
Remember, this should only be short-term, but doing so even for a couple of months can make an enormous difference.
It’s never too early for home saving plans, and with these tips, you’ll be much closer to your dream home. All it takes is a little bit of planning, commitment, and dedication, but it will all be worth it the minute you step foot into your new home.
What is the fastest way to save for a house?
To save for a home quickly, start by calculating how much money you’ll need for a down payment (including any extra costs, such as moving expenses), and create a solid but realistic plan you’ll stick to.
Afterward, think of some of the ways you can cut costs and earn extra money. Cutting costs might mean skipping on your gym membership, moving to a cheaper place or finding a roommate, not buying anything other than the necessities for a while, etc.
To earn extra money, find a side job, such as pet sitting or offering lessons in something you’re good at.
Finally, automate your payments so that a set amount of money from your checking account will automatically go into your savings account.
Review your plan and savings after a few months and see whether things are progressing the way you expect them to be. If not, try and figure out what you can improve in order to save more money.
How much money should I save before buying a house?
The most important thing you need to save for is the down payment. You should aim at about 20% of the total cost of the house. For example, if your dream home costs $404,700, you’d need to save $80,940 for your down payment.
Make sure to do your research thoroughly, as many government-sponsored down payments require as little as 3% for first-time buyers.
You’ll also need to consider all closing costs, such as home inspection, title insurance, property taxes, and an escrow account. For this, you’ll need to set aside about 2–5% of the cost of the home.
And finally, there are moving expenses to consider. You can cut costs if you don’t hire professionals and instead do it yourself, but you will still need a vehicle, boxes, some help from friends or family, and time to move everything.
All in all, If you’re wondering how to save for a house, keep in mind you’ll probably need more money than you originally imagined.