How to save money for a house: Practical tips in 2025

Owning a home is an exciting goal—a chance to plant roots, build a future and grow within a community. But figuring out how to save for a house amid today's economic conditions can feel challenging.

The housing market, for example, has undergone several shifts recently. In the past five years, the national 30-year fixed mortgage rate has gone from about 4.5% down to about 2.2% and then sharply up to almost 8% before settling back to around 6% in the last quarter of 2024. At the same time, the national average sales price for a home has risen from just under $380,000 to just over $500,000.

Regardless of these conditions, however, setting a clear savings goal, learning where to keep your money and following practical budgeting tips can be the catalyst to making your dream of homeownership a reality.

Figuring out how to save money for a house may be intimidating, but it's possible with a thoughtful plan. Breaking down the process into manageable pieces can make a huge difference.

Ask yourself these six questions:

Review your current savings. Think about any funds in savings accounts, emergency funds or other non-retirement assets that could go toward a home. This can give you a starting point as you run the numbers and a build a budget for saving.

As you prepare to save, consider opening a dedicated savings account specifically for your home fund. Keeping these savings separate can help you stay organized and motivated as you watch the numbers grow.

Check out savings account options from Thrivent Credit Union

How much money you'll need to save for a down payment depends on the type of loan you choose and the home's cost. While a 20% down payment is often suggested to avoid private mortgage insurance (PMI), many lenders offer lower down payment options. In 2024, the average down payment is 13.6%, giving many homebuyers the flexibility to make the leap.

Think about how much you're comfortable putting down. A larger down payment may lower your monthly mortgage payment and reduce or eliminate the need for PMI, which is usually between 0.2% to 2% of the monthly loan amount. However, you may need more time upfront to save for a down payment.

A monthly mortgage payment typically includes the loan principal, loan interest, property taxes and homeowners insurance.

To determine the monthly mortgage payment that fits within your budget, consider the following:

• Your monthly take-home pay. Look at your monthly income after taxes. Try to keep your mortgage payment at around 25% to 35% of this amount. This range lets you cover your mortgage without stretching your finances too thin.

• Additional monthly expenses. Your mortgage payment may not be your only housing expense. Be sure to budget for homeowners association (HOA) fees, property maintenance and utilities to get a complete picture of your monthly housing costs.

A homebuying calculator can give you a ballpark idea of your monthly payment once you plug in different interest rates, loan terms and down payment amounts.

There are homeownership assistance programs available for those who meet certain requirements. Veterans, first-time homebuyers and rural homebuyers are just a few. Be sure to explore your options and discuss them with your lender before looking at homes. Many assistance programs are income driven and how your income is calculated can vary by program.

• Federal programs. The Federal Housing Administration, Veterans Administration and U.S. Department of Agriculture each offer loans with low down payments or even no money down and flexible credit requirements to those who qualify. If you have a low income, you may qualify for the Housing Choice Voucher, and the U.S. Department of Housing and Urban Development has a discount program exclusively to help police, firefighters, emergency medical technicians own homes in revitalized areas.

• State, county and city programs. Check with your state housing finance agency and other state and local home assistance programs. Many offer affordable rates and down payment deals for residents.

Interest rates and home prices ebb and flow with the economy. The rate when you purchase a home plays a key role in your monthly mortgage payment. Focus on what you can afford and are comfortable paying.

Your credit score is also a key factor in determining your interest rate. A higher score generally leads to better loan terms. Before applying, review your current score and see if you can improve it by paying down debt, making payments on time and avoiding large purchases or new lines of credit.

It's easy to focus on the down payment and the monthly mortgage, but there are other costs to factor in:

• Closing costs. Usually, closing costs are around 2% to 5% of your mortgage loan amount. These costs cover home appraisal and inspection fees, realtor commissions, underwriting fees, insurance and property taxes, real estate attorney fees and more.

• Other expenses. Plan for homeowners insurance, property taxes and other required HOA fees. Additionally, saving about 1% to 3% of your home value for yearly maintenance can help you prepare for repairs and upkeep.

Consider setting aside emergency savings to help cover any unforeseen costs that will likely pop up. Be sure to set aside savings for when you move into your home for necessities, repairs and cosmetic changes.

Explore how much to save and where to keep emergency funds

Try a free Balanced Homebuying^® Calculator

Balanced Homebuying^® gives a recommendation for an amount for you to spend on a home. While you may qualify for a bigger loan, this amount would allow you to use part of your income for financial goals.

Try it out

Building a savings plan requires balancing your current financial needs with your home ownership goals. Here are the essential steps to creating a plan that focuses on your priorities:

Track your monthly spending, including fixed costs (housing, utilities) and discretionary expenses (dining out, shopping). Understand your spending habits to identify where to trim non-essential expenses and boost your house savings.

Learn more about the best budgeting methods

Prioritize financial goals into needs like rent and groceries versus wants like vacations. Consider temporarily scaling back on wants to help increase savings.

See examples of needs, wants and wishes

If you're saving for multiple needs, adjust timelines and contributions. For instance, putting less into a travel fund or delaying a purchase can help when saving for a down payment. Review your retirement savings plan with a financial advisor and see what strategy can boost your house savings without impacting long-term retirement needs.

Once your budget is in place, set a realistic timeline for buying a home. Choose a target date for your savings and work backward to calculate your monthly savings needs. For instance, to save $15,000 in three years, you'd need to set aside around $415 per month.

Ultimately, your goal is to find a balance that works for you without compromising your other needs and overall financial health.

When saving for a home, the accounts in which you put your money can be as important as how much you save, especially in a high-interest economy. High interest rates currently are making it more expensive to borrow money while interest-earning savings accounts are more attractive.

Here are a few places to save money for a home to help you grow your money while tackling this life goal.

• Money market accounts earn interest, so you can access your money as easily as a checking account. These accounts could be ideal if you're in the later stages of buying a home or need quick access to your money.

• High-yield savings accounts often earn higher interest than money market accounts. To withdraw funds, link the high-yield savings account to a checking account and initiate a transfer.

• Certificates of deposit (CDs) may earn higher interest rates than high-yield savings accounts. But you need to wait until the CD matures to withdraw your money, or you could be penalized. So, CDs are usually ideal if you can let the money sit for at least six to 12 months.

• Homebuyer savings accounts. Your state government may offer first-time homebuyer savings accounts. These accounts could earn interest and provide tax advantages for residents.

After establishing a timeline based on how much you need to save, you may be daunted by what seems like a long road ahead. But there are lots of ways to trim your monthly spending in other areas, and those little changes add up in the long run.

These budgeting tips can help you grow your home savings even faster:

• Automate your savings. Reach your savings target as efficiently as possible by setting up an automatic deposit or transfer from your checking account to your interest-bearing savings account.

• Cut back where you can. Inflation means prices are higher, but it's worth sticking to a budget. See if your service providers offer discounts on monthly bills. Any monthly savings can go toward your down payment.

• Consider a part-time job. If there's room for it, you could land a part-time job with an employer or join the gig economy as a freelancer. From ride-sharing to pet-walking, even grocery shopping, making extra cash can build your home savings faster.

• Save any extra money. Depositing regular cash windfalls, like an annual bonus or a tax refund, into your interest-bearing savings account is a great way to increase your home savings.

• Refinance debts. When carrying debt, knowing how to save for a down payment can be more challenging. But there is a way to do both. You can lower monthly payments on high-interest debts by refinancing a lower-interest loan. Transfer balances on high-interest credit cards to a lower-interest credit card or a card with a 0% APR promotion. You can use the money saved in monthly payments toward student loans or other debts (and reduce your debt-to-income ratio) to save for your down payment.

Revisit your plan and monitor your progress regularly (monthly or quarterly, for example). You may find that it's easier to cut back in certain areas than you thought, or you might realize you didn't allocate enough money for a specific line item. Don't be afraid to adjust your plan as needed. While there may be periods where you can't save as much as you would like—such as during a job transition or an unexpected expense—the key is consistency; even small amounts saved each month can add up significantly over time.

Also, look for ways to grow your funds, such as a high-yield savings account or other investment tools that match your timeline. Taking advantage of these options can help you reach your goals faster.