Are you wondering how to save for a house sooner rather than later?
Many people think they need to save for a decade or more before saving up enough money for a house- it’s very daunting for first-time homebuyers!
The truth is, there are many things you can do right now to start saving and making your future home more attainable. You could do some smart savings habits now and have enough money in a few years for a hefty down payment on a house!
It’s never too early or impossible to save money for a house. Let’s look at seven steps that will help you get motivated to save money each month for a house.
What You Need To Save For
many people spend upwards of $100,000+ dollars on their home- so how much money do you need for a house?
Have you thought about all the other expenses that come with home ownership? There are the home prices to think about and mortgage rates of course, but there’s more to it money-wise.
Owning a house is expensive, and many costs need to be considered before purchasing one. Other costs include the down payment, closing costs, moving costs, home repairs, and decor.
A down payment is usually required when buying a house, especially if you want a lower mortgage rate and lower monthly payment!
Without a down payment, you may not be able to qualify for a loan from a lender either.
The type of loan you get for your future home will determine the amount of your down payment. Having a 20% down payment is not a requirement anymore.
You can now qualify with as little as 3% down for a conventional loan, as long as you have good credit and can provide proof of income. If you do not meet these requirements but still want to buy a home, you may be able to get a USDA or VA loan with no down payment at all.
Most lenders will require private mortgage insurance (PMI) if you don’t have a large enough down payment. Why do lenders require private mortgage insurance? If you default on your loan, it protects the lender.
It’s essential to consider the down payment when saving up for a house. Be sure to add it to your monthly savings plan and even move the money to a down payment savings account to have enough money to cover this expense when the time comes.
Closing costs are fees that go along with purchasing a new property. They are the fees charged by the lender and other third-party professionals involved in the home buying process.
The closing costs can range from hundreds to thousands of dollars, so it’s essential to be aware of them before buying a house and adding them to your savings plan.
You must know precisely what closing costs you may pay before buying your home, so we’ve outlined them below:
- Real Estate Fees: When purchasing a new property, there can be real estate fees associated with it. You don’t pay an hourly rate for your real estate agent, but the closing costs cover all those services they’ve provided. These fees could be anything from the real estate agent’s commission to title insurance.
- Mortgage Fees: Your mortgage will also have associated fees, such as an origination fee, mortgage broker fees, a processing fee, credit reports, and underwriting fees.
- Taxes: Besides your mortgage fees, you will also need to pay property taxes on your new home.
- Homeowners Insurance: You will need to pay for homeowners insurance, which protects your property in case of damage or theft.
Moving can be expensive, and it’s best to plan. If you don’t have the cash for this expense, try saving up before your move date so that you won’t need to spend all of your money moving.
To save money on moving expenses ask friends or family members for help, which can be cheaper than hiring a company. But if you’re going this route, make sure that everyone involved understands what they are getting into and agrees on expectations ahead of time.
Please make sure the moving company you pick comes with good reviews from past clients who have used them before and ensure that they offer competitive rates because there are plenty of companies out there that do.
Downsize before you move to save on these costs. Get rid of any furniture, appliances, or other belongings that you don’t need and won’t be taking with you to your new home.
New homes often will have some repairs in the first few months or years after moving in that need to be made. These repairs can be costly and add to your monthly household expenses.
Some typical repairs include: fixing a leaky roof, repairing a hole in the wall, repainting the walls, and replacing the carpets. Getting a home inspection before buying a home will help you know what repairs may be needed.
It’s important to know what to expect when it comes to home repairs so you can start saving for them now. Add this cost to your monthly savings plan, and you’ll be on your way to having the repairs done when they are needed.
Once you buy your home, you will want to decorate it however you want! However, this can also be one of the most expensive things about owning a home.
You may need to purchase furniture, rugs, decorations, and other items to make your new home feels like a comfortable living space for yourself and any guests.
7 Steps For How To Save For A House
It’s never too early to start budgeting and saving for a house. And the earlier you begin, the more time you have to save and grow your funds.
To save for a home purchase, you’ll need to take these seven steps:
1. What’s Your Timeline?
You’ll need to take your timeline into account when you begin saving.
When will you purchase a home? In two years, five years, or ten years from now?
As it gets closer to purchasing a house, set up automatic transfers from checking accounts to your separate savings account for your down payment so that savings continue even if one forgets about their own goals.
2. Determine Your Savings Goals
How much house can you afford to buy? What percentage of the home’s purchase price would you like to save each month?
ou down payments and monthly payments are all in your hands, and you’ll need to figure out some estimates for what you’ll be able to pay.
Your mortgage lender can help you determine how much home you can afford to buy and your approximate monthly payment. They will look at your monthly take-home pay, debts, and credit score.
They may also require that you have a certain percentage saved up to get a loan. You don’t want to over-extend yourself financially each month on your monthly mortgage payment. So it’s important to know what you can afford and still save money.
Be realistic about the percentage that you will need to save before buying a home. It’s much better to have more than enough than not nearly enough when it comes time for mortgage approval.
3. Review Your Budget
Take a look at your current budget and figure out where you can cut back on spending and monthly payments. You need to know your current financial situation before adding on top of it.
How many more student loan payments do you have? When do your car payments end? Knowing these pieces of information can help you when creating a budget and saving for a house.
When creating a budget, it’s essential to be realistic about your income and expenses and know exactly what you’re spending money on. Don’t set yourself up for failure by trying to save more than you can realistically afford each month.
4. Pick Your Savings Spots
Make sure to prioritize your savings goals and account for them in your monthly budget so you can make the most of every dollar!
There are various ways to save money, but finding the right ones for you is key. Think about things like cable, eating out, and even entertainment costs. These small changes can add up over time and free up more money to save each month.
A few ideas to save money can include:
- reducing household expenses by cutting back
- finding free services like free internet to help other costs down before and after you move
- transferring money into savings automatically with your bank
- utilizing programs such as Ibotta, Honey, and Capital One Shopping to get shopping rewards, coupons, gift cards, and even automatic rebates
Some people decide to reprioritize their general savings- for example, you may decide to put less into your retirement savings if you’re young since you’ll likely buy a house well before retirement.
Others will decide the same when investing in the stock market- you could use your stock gains to buy a house, but it can take longer if you’re not sure how to invest.
One thing we know from experience though, is that people will make the mistake of forgoing their emergency fund- we say don’t do it! Your emergency fund is a definite savings you need to avoid accruing credit card debts during emergencies.
You may need to focus on upping your house savings and emergency fund at the same time, just to ensure you don’t pay out the nose for a problem!
5. Automate Savings
To save for a house, you have to start setting money aside. A great way to do this is through automation, by having your savings automatically transferred to your separate account. It’s easy and painless!
You don’t have to worry about it each month because the bank will transfer the amount you want without fail every single time.
To make this easier, many banks offer automatic savings features that you can use. Plus, if your employer offers a 401k plan, they will likely also have an automatic deduction option!
This way, you’ll never forget to save and can rest assured knowing that your money is working for you in the background.
6. Earn More On The Side
You can always do something simple, like ask for gift money for your birthday and holidays, but the best way to guarantee more money towards your house is to make more money yourself!
Increase your income by finding ways to make money on the side!
You can make extra income by doing anything from selling items you no longer need or use, taking on a second job for extra cash, renting out space in your home, or even starting up an online business.
Depending on your experience and skill level in these fields, there are plenty of opportunities available for someone looking to earn some extra money.
The best part is that these opportunities allow you to work from home, which means more flexibility and freedom for you. Some side gigs can turn into a full-time, high-paying career!
We’ve done so many side hustles to make more during our college days, and even saving up for our own house.
Here are a few ways to make more money:
- If you have experience writing, you could start a blog or become a freelance writer. You can even take writing courses to learn how to write better and make more money, like the Earn More Writing course.
- If you’re good with numbers, become a bookkeeper. You can keep records for a local business, and learn how with this FREE bookkeeping workshop.
- If you are good at catching grammatical errors, proofreading may be the perfect job for you, and you can learn how from this FREE 76-minute workshop to start your proofreading business.
Savvy Tip: Think about starting a blog showing the steps you are taking to save for a house. It could help others get motivated to save. It could also become a side hustle bringing in extra passive income each month!
7. Keep Track Of It All
It’s so easy to get lost in the whirlwind of life and forget about your financial goals. You don’t have to be an accountant to keep track of your budget and savings goals!
Use budgeting tools to keep track of where every dollar goes. Mint is an all-in-one personal finance manager that can help make managing your finances more straightforward than ever before.
Mint will break down how much money you’re saving for buying a house each month, what types of expenses are coming up in the future (like car payments, personal loans, or student loans), and how much credit card debt you owe right now. It also includes password protection, budgeting tools, notifications when bills are due, or your credit score changes.
If you’re looking for a more comprehensive personal finance management system, Personal Capital may be the option for you. Not only does it track all of your finances like Mint, but it also gives detailed insights into investment portfolios, retirement planning and even provides help with tax season.
Following your progress will help you stay motivated to continue saving for your future home. Need help deciding which budgeting tool is right for you? Check out our review of Personal Capital vs. Mint to help you decide!
Paying Off Debt Vs. Buying A House
Debt is a huge concern for many people. It’s important to understand the benefits of paying off debt before buying a house.
When buying a house, the debt to income ratio is an important consideration. It is the percentage of your monthly income that goes towards debt payments.
You want the amount you pay in debt payments to be lower than the amount of your monthly income. A high debt to income ratio may make it difficult to qualify for a mortgage.
Your down payment is also important. You want to have as much of the purchase price saved up for a down payment as you can. It will reduce the loan amount and lower your interest payments.
Paying off your debt, such as student loans, personal loans, auto loans, and credit cards, will also help you build your credit score. A good credit score is important if you want to get a mortgage.
By having a higher credit score, you will have a better chance of getting better interest rates. Not sure what your credit score is? A free credit report is available from annualcreditreport.com.
If you are struggling with debt, it is important to address this before buying a house. You may need to take an extra job or start a side hustle, such as blogging or online proofreading to get your debt paid off and under control.
Want to buy a house? By following these simple steps, you can rest assured knowing that you’re making smart financial decisions and are really on your way to saving for a house.
Remember to continue to save even after reaching your target amount- you never know when an unexpected expense might come up! Not only will you be well on your way to reaching your savings goal, but you’ll also be prepared for the future.