Saving up for a house is a daunting task. With home prices rising across the country and countless industries suffering financial implications due to the COVID-19 pandemic, it can feel more challenging than ever to save enough money to buy a house. For many, however, the dream of homeownership is impossible to ignore. That’s why we’ve done the research and talked with experts to offer real, actionable tips for saving for a house and ideas to help you maximize your savings to buy a home.
Let’s jump right in.
1. Make a budget
No, this isn’t new advice, but it’s a popular mantra throughout the personal finance community for a reason.
Making a budget gives you a clear understanding of your incoming and outgoing funds each month, which creates an opportunity to make powerful adjustments to both your spending and savings habits.
Apps like Mint and You Need a Budget are user-friendly, intuitive platforms that integrate with your banks, credit cards, and other financial accounts to give you a regular breakdown of your spending. While you could sit down with your bank statement and a highlighter each month to determine where your money is really going, a good budgeting app will categorize your purchases for you — think groceries, clothing, household, utilities, and so on.
It sounds cliche, but budgeting is as much of a mindset challenge as it is a refresher in mathematics. When you fully understand what’s happening with your money, you’ll actually have more flexibility in how you use it. “Budget” is not a synonym for “restriction”!
2. Automate your savings
Once you know how much money you can save each month thanks to your budget, do yourself a favor and automate your savings.
Most online banking portals give you the option to set up regular transfers. It’ll only take a few minutes to set up a filter to automatically route a specified amount of money into your savings account (bonus points if you set up a special account just for your future home rather than using a catch-all savings), and you can choose whether this happens weekly or monthly.
Time it to match your paychecks and soon, you won’t even notice the “missing” money.
If your earnings fluctuate, you can always make adjustments as you go — a little more here, a bit less there — but setting up a manageable amount of money to automatically transfer each month ensures that you’ll be making a consistent effort toward your goal.
3. Is there room to trim?
We’ve all heard the tired advice about skipping our fancy lattes if we’re serious about saving money, and while it’s true that small expenses do add up over time, dropping $5 on a coffee a couple times per week is unlikely to make or break your goal of saving for a house.
Financial goals are best met through realistic and sustainable change. Quality of life is important, and while some folks are totally fine to abstain from all manner of excess, most of us would probably prefer to save for tomorrow while still enjoying today.
So instead of stripping your life down to the bare essentials and funneling every spare penny into your savings account — though, if an aggressive strategy does sound appealing, more power to you! — take a look at your budget and see where you can make a few tweaks.
- sometimes ride a bike or use public transport instead of driving?
- reduce your restaurant visits to one outing per week instead of three?
- replace a pricey gym membership with workouts at home or in the park?
- finally kick that smoking habit?
- downsize your current housing situation?
- refresh your seasonal wardrobe with just a few essentials rather than entirely new outfits?
- practice saying, “I’d love to, but [insert activity here] isn’t in my budget while I’m saving for a house” to politely yet firmly decline recreational invitations from friends or family?
Remember, saving money is a balancing act. While you needn’t eschew all social activity, a big savings goal can be helpful in reevaluating your priorities and giving you the confidence to say “no thanks” to events or purchases you may have otherwise only agreed to out of a feeling of obligation.
4. Can you increase your earnings?
Like it or not, we’re living in an era of hustle culture. It seems like everyone has a side gig or a monetized hobby, and while there’s plenty to be said against turning every waking moment into a dollar, there’s no denying that there’s more opportunity than ever to earn money in unique, flexible ways.
If you’re saving for a house, taking on a part-time job or a new freelance client is a surefire way to funnel hundreds — perhaps thousands — of additional dollars toward your goal each month.
But if you’re already working an extra gig, or if it’s infeasible to do so, consider whether you have other options for bringing in extra income:
- take on a roommate or turn a spare bedroom into an Airbnb?
- rent out a parking space?
- negotiate a raise at work?
- increase your rates if you’re self-employed?
- open an Etsy shop and sell some of those crafts everyone is always complimenting?
Be creative, but be sure to protect your sanity, too.
5. Host a yard sale
Whether you want to chalk it up to spring cleaning, practicing KonMari, or doing an early pre-move declutter, going through your home and hosting a yard or garage sale can be a great way to spare yourself the effort later — and grab some extra cash today.
6. Pay down your debt (maybe)
It may seem counterintuitive to shovel cash toward other debt while actively saving for a home, but depending on the type of debt, it may be worth your while to briefly reprioritize.
This is a situation wherein it can be valuable to sit down with a financial advisor or a mortgage lender to discuss your financial situation in-depth.
While there are many different types of consumer debt, some debt is seen as “better” than others. Student loans, for example, are not interpreted as egregiously as credit card debt, and medical debt may be looked at differently than an auto loan.
A financial professional can review your credit history and your current accounts to help you determine what may be hindering (or helping!) your ability to qualify for a mortgage, and provide advice on how to best move forward.
Not sure where to start? Try the local branch of your bank or credit union. Most banks have financial advisors in-house who are happy to help members, and if your needs are beyond their scope, they can at least point you in the right direction.
7. Leverage down payment programs (and embrace minimums)
There are more down payment assistance programs available than you might think. Specific programs can vary by state, but some of them will even match your funds up to 10%, which can provide a big boost to be able to purchase a home sooner than expected.
With an FHA loan, you can potentially buy a house for as little as 3.5% down. If this seems like too little to be a wise move, think again.
“Leverage that FHA down payment,” says Jennifer Seeno Tucker, a top agent in Elmont, New York. “It’s okay to purchase that way if it gets you into a home that you need to be in. It’s a way to start building wealth; it’s the first step.”
8. Leverage low interest rates
If you have some cash already saved up but have been thinking you should wait until you have a larger down payment, you might actually want to reevaluate.
“One of the things a buyer needs to consider is how long it will take to save up a down payment,” says Shirley Grindel, a Kent, Washington-based top agent.
“Interest rates are at historic lows right now, so let’s say it takes you a year to save up a minimal down payment of 3.5% or 5%, and in that year the interest rates go up 1% — that’s going to hurt your purchasing power.”
As an example, let’s say your budget is $1,500 for a monthly principal and interest mortgage payment. Buying when mortgage interest rates are at 4% gives you $250,000 worth of buying power. At 5% interest, that figure drops to $230,000. Take it even higher to a 6% interest rate, and your purchasing power is now just $210,000.
In a competitive market, those extra tens of thousands can make a huge difference in your ability to get into the house of your dreams.
Rather than fixating on a big down payment, Grindel encourages hopeful homebuyers to make sure they have enough saved to cover their closing costs.
“With how competitive this market is, I recommend saving your closing costs so we’re not negotiating those [with the seller]. It’s almost impossible in a multiple-offer situation,” she says.
9. Channel windfalls accordingly
This may be obvious, but funneling unexpected or large chunks of change into savings is definitely a smart move along your homebuying journey.
Windfalls can include workplace bonuses, birthday or holiday money, tax refunds — anything that is above and beyond your standard earnings and side hustle income. If you need a little wiggle room to treat yourself, take 10% and use it for whatever you want, but make sure that the remaining 90% goes toward your future home.
10. Weigh your retirement options
There’s an old saying about how the best time to start saving for retirement was yesterday, but the second-best time is today. This is true thanks to the beauty of compound interest — the longer money has an opportunity to gain interest, the more of it you can gain.
So, while we’re not going to tell you to put your retirement contributions on hold, we will recommend adding this topic to your list of talking points with your financial advisor. If there’s a short-term option that can help you maximize your home savings without damaging your retirement investments, there’s no harm in keeping an open mind.
11. Make it a game
While the idea of saving money may not seem like your definition of fun, it doesn’t take long for the self-satisfaction to kick in. Watching your savings account grow steadily, knowing you’re working toward a big, meaningful goal is a reward in and of itself.
So, up that enthusiasm and turn it into a game!
Can you save more this month than you did last month? Is there a certain milestone at which you’d like to give yourself a prize?
Whether you’re popping a bottle of bubbly at the 75% mark or taking it back to the days of elementary school with a gold star sticker on the calendar, have fun with your quest. It’ll help keep you motivated and focused.
Just, maybe don’t start debating between Marriage or Mortgage once you’ve reached your goal…
12. Where’s the finish line?
It’s one thing to have an arbitrary “save for a house” goal; it’s entirely another to know specifically that you’ll be looking for a house at a price point of $250,000, and you want to put 5% down and have enough in the bank to cover your closing costs.
If you’re not yet clear on these points but you would like to make your move within the next several months, don’t hesitate to reach out to a mortgage lender and a real estate agent.
The lender will help you assess your financials, while the agent will help you gain an understanding of the local market and what you might be up against in terms of inventory and negotiations.
Remember, the more information you have at any given time, the better you can make skillful decisions.
Try to enjoy the journey
Saving for a home can be a long and arduous road, but with the right mindset and consistent application of practical tips, you can absolutely do this!
Just think: One day, you’ll be sipping a cool drink in the backyard, reminiscing over the sacrifices you made to save all that money.
“Was it worth it?” you’ll ask yourself as you swirl the ice in your glass, noticing that you should probably cut the grass this weekend. Your grass in the yard of your home.
Heck yes, it was worth it.
Header Image Source: (Mintr / Shutterstock)