How to Save Up for a House: 5 Helpful Tips to Know
14 Mar 2020
You’re ready for your next big step: homeownership.
But first, you need a healthy down payment. Figuring out how to save up for a house can seem challenging, especially if money is already tight.
Working at your goals a little at a time helps you gradually build your home savings account.
Use these five tips to get yourself there faster.
1. Set Your Savings Goal
Having a target down payment amount helps you create a savings plan. Say your goal is to save $24,000 in 2 years for your down payment. You know you’ll need to save at least $1,000 per month to reach that goal.
To set your goal, decide on your target home price range.
Decide what percentage of the home purchase you want to use as your down payment. Some loans allow as little as 3% of the purchase price.
A better goal is at least 10% of the purchase price. This gives you more options for loans.
If you can save 20% of your home purchase price, you can avoid private mortgage insurance, or PMI. The purpose is to protect your lender if you can’t pay the mortgage.
PMI can add anywhere from $30 to $70 for every $100,000 you borrow each month. If you borrow $200,000, you can expect an extra $60 to $140 every month for PMI.
If your down payment is at least 20%, you can save money on your mortgage.
2. Create a Separate Account
Starting a separate savings account for your house savings ensures that money doesn’t get spent on other things. It’s easier to track your down payment progress. Seeing the account grow can also motivate you to save more.
Automate savings by having a set amount of money transferred into the account on a regular basis. If your goal is to save $1,000 per month, have $250 automatically transferred each week.
3. Cut Your Living Expenses
If you’re serious about saving for a home, it’s time to cut back on your current expenses. Most people have extras they can cut.
Here are some examples:
- Gym memberships
- Monthly subscriptions
- Dining out
- Extra clothes
Before you make any extra purchases at the store, make sure you truly need them. If you’re tempted to make a purchase, think about the trade-off.
That purchase delays your home purchase even more because it takes money away that could go to your home savings. Which is more important to you?
4. Add Income
Another way to build your home savings fast is by temporarily adding income. This could be as a second job or as a side hustle that you do in your spare time.
No one wants to spend more time working, but when you remember that it’s just temporary, it’s easier to handle. It’s also helpful to remind yourself that the extra work is getting you to your goal of homeownership faster.
Set up your direct deposit from your second job to go directly into your home savings account. You’re not counting on that money in your budget anyway. It’s best to have it go directly to the house account, so you don’t spend it elsewhere.
5. Put Unexpected Money Toward Your Home
Have you received unexpected money recently? Perhaps you inherited money from a relative, got a bonus at work, or scored a tax refund.
That free money is fun to spend on splurges, but it’s a better investment to put it toward your house goals. Those unexpected sums can give you big bumps in your savings account and help you reach your down payment goal much faster.
Learn How to Save Up for a House
Figuring out how to save up for a house takes some planning and intentional money control strategies. Keep your ultimate goal of owning a home in mind to help you stay on track.
Do you need some help getting your finances on track to save for a house? Contact us to schedule an appointment.