If you’re envisioning living on rice and beans and selling your left kidney in order to save for a house, we’re here to tell you it’s possible to do so without such extreme measures. In fact, it’s even possible to do so in just one year!
According to real estate agent Cosmo Spellings, who has more than 15 years of experience, “Owning a property is probably one of the single best investments that you will ever make in your life.” Not only does purchasing a home make it your own, but property almost always appreciates in value over time. So even if you have to tighten the purse strings to make it happen, it’s sure to be worth it in the end. Read on to learn how to save for a house in a year!
How much do I need?
Let’s assume you want to get your foot in the door of homeownership — you’re not trying to avoid PMI by making a large down payment, and you’re on the market for a starter home (maybe you’re planning to trade up later). The list of homebuying expenses to budget for include:
This depends greatly on what loan you get. If you’re aiming to save for your house in a short time frame, you probably won’t be budgeting for a 20% down payment.
If you get an FHA loan backed by the government, you will be required to pay at least 3.5% down. Conventional loans can also be secured with 3% down as long as you pay PMI. If you or your spouse were ever in the military, you may qualify for a 0% down VA loan, and if you’re buying in a rural area, you could qualify for a 0% down USDA loan.
For the purposes of our estimate, let’s assume you need 3.5% down and that the home you are purchasing has a sticker price of $300,000 (which is close to the January 2020 national average home price). Then this means you’ll need about $10,500 for the down payment. (Check out HomeLight’s Down Payment Calculator to get a better estimate with your own numbers.)
These include appraisal, inspections, title insurance, taxes, homeowners insurance and other associated fees. A typical estimate is that closing costs will amount to between 2% and 5% of the sale price. For our $300,000 home, this is between $6,000 and $15,000.
These can also vary considerably and depend on whether you are moving across town and able to do most of the work yourself or with the help of friends, or if you need to hire a moving company and make a cross-country move. (On a budget? We have some suggestions for keeping moving expenses low). In this scenario, let’s assume you can get by with $1,000 for the move.
This makes our final estimate for what you need to save in a year somewhere between $17,500 to $26,500. For the sake of illustration, we will base the remainder of our math on the median number of $22,000. Adjust your total up or down as needed.
OK, now how do I get there?
Saving up $22,000 is no small feat, especially if you’re starting from 0. If you are an average American household, and your income is somewhere around $75,500 per year, this amounts to almost 30% of your gross income (and even more of your take-home income).
So where are you going to come up with $22,000? There are two main ways to maximize your savings: Cut corners wherever you can, and increase your earning potential. Consider the following options.
If you live somewhere with high rent, is it possible to move to a cheaper rental for the year? Alternatively, could you rent out a room, or even your whole space as an Airbnb on weekends while visiting family?
Moving from a $1,200/month rental property to one that’s only $900/month is a $3,600 annual savings (assuming the difference isn’t lost to moving costs). And depending on your current residence, you may be able to charge $200 to $400 each month to rent out a room, which would yield approximately the same savings. (As an Airbnb rental, you could make even more.)
Food and drink
First, stop eating out (or severely reduce how much you do). A family of four can save as much as $2,600 in a year by skipping dinner out twice a week. Furthermore, avoiding trips to the bar or local coffee shop can rack up savings\. Kicking a $5-per-day “special drink” habit can help you pocket nearly $2,000 per year in savings.
Also, be mindful of where you shop for groceries. Cut coupons and head for your local high-discount grocer more frequently. In total, such cutbacks could net you a savings of as much as $4,000 to $6,000 in a year, depending on your current habits.
Health and recreation
Cancel your gym membership and work out at home for a savings of about $700. You could even walk dogs for extra income and get some exercise at the same time! (Dog walkers make around $14.50 an hour, depending on location).
If you smoke, it’s time to quit — the average smoker lights up about $1,000 every year in cigarettes. (You’ll also gain years added to your life, as well as savings on health insurance and medical expenses.)
Could you cancel any of your streaming services?? Those add up pretty quickly and can be costing you several hundred dollars each year in total. Find free things to do for fun instead of spending money. Go to local library movie nights or arts events instead of the theater, or seek out other community offerings. A hike in the woods can be a great inexpensive date!
In total, cutting back in the health and recreation department could save anywhere from a few hundred to a few thousand dollars, depending on your current habits.
Trade down your vehicle to minimize the payment and put the savings into your house fund. If you’re a two-car household, see if you can get by with one vehicle — a savings in both car payment, insurance, and gas. With an average car payment of around $550 per month for a new car, getting rid of a vehicle could save you $6,600 for the year (with an additional $5,000 in savings on gas and insurance!)
You might also consider carpooling to save gas money, or even picking up a side hustle driving for ride shares. Depending on how you work this, the savings could be in the thousands.
Can you put your retirement savings on hold and divert what you aren’t spending there to a home fund? If you have 10% going into retirement savings right now, that’s $7,550 a year! You could also consider borrowing against your retirement savings to help fund your home purchase if needed.
A well-timed garage sale can net you between $500 and $1,000. This is also a good way to reduce how much stuff you have and save on moving costs later!
If you keep your accumulating savings in a high-yield savings account, it could grow by a few hundred additional dollars during the year. That’s extra money without any additional extra effort.
Putting your yearly plan together
Depending on where you live and what your income looks like, you might want to take all the drastic measures you can — or you might be able to pick and choose.
In the example scenario in this article, you would need to set aside aout $1,833 each month to make the $22,000 needed by the end of the year. You may be able to achieve as much as 50% of this total from cutbacks alone, but you will likely want to consider other income streams as well, such as leveraging your retirement savings or embarking on a new side hustle (dog-walking, ride-share, freelancing any skills you might have, or an additional part-time job.)
If this total seems daunting to you, keep in mind that the numbers come out lower if your target home price is lower, and that there are other ways of coordinating home purchase to reduce the upfront costs. This includes folding closing costs into the loan or asking the seller to pay for some of them.
The down payment is the single biggest expense, but the VA and USDA offer 0%-down loans to certain qualified homebuyers in specific areas. Spellings cautions, however, “That doesn’t mean that you’re not going to spend any money to buy. It just means on the loan side of it that’s no money down.” Closing costs and other expenses still apply.
According to Spellings, it’s a good idea to, “Reach out to a lender to see what is available to you, based on your credit, based on your income and what you can afford.” That will give you a better idea if you need to save a lot or just a little.
Talking to a top real estate agent in your area can also give you a sense for how much you’ll need to save in your market and how to get started with your 12-month plan.
Header Image Source: (David Veksler / Unsplash)