Buying a home is a major step in life—and an equally major purchase. An inflated housing market,
Saving in stormy waters is certainly more difficult, but isn't impossible. With a plan in place, you can get closer to reaching your savings goal and dream home.
Saving for a home
Before you can strategize and execute, you need to know your target. However, how much to save for a home will depend on your financial goals. Here's how the following situations may impact your savings strategies.
When you're prioritizing monthly mortgage costs
Because your mortgage will be a chunk of your monthly budget for the next 10 to 30 years, identifying a manageable monthly mortgage can be a great place to start. Many experts recommend that your mortgage payment should take up
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When you're prioritizing the down payment
In the past, lenders would require a 20% down payment—but this is no longer the case. The average down payment on a
That said, there are downsides to paying less upfront. In general, the less money you put down, the more you'll pay in interest and fees. Additionally, putting down less than 20% requires you to purchase private mortgage insurance. PMI can cost anywhere from
If you need help figuring out how substantial your down payment can (or should) be, consider working with a
When you're prioritizing your overall financial health
Record-low mortgage rates fueled much of the housing demand in 2020 and 2021, but interest rates are rising quickly. As of June 2022, the average rate on a 30-year
Although you can't control these larger economic factors, you can protect your financial health. If your finances aren't in order, you risk needing to save or spend far more than others might.
- A low
credit scoreor a large amount of debt may make lenders nervous. Meanwhile, a high credit score and more manageable debt may incentivize a lender to offer you a lower interest rate and possibly a lower down payment. If you want to remain financially savvy in the long run, work toward paying down debt and improving your credit score before jumping into the home buying process.
- Nationwide, 5,897 homes sold for at least
$100,000 over their asking priceat the beginning of 2022. A common guideline is to pay no more than 1% to 3%above the asking price. If you have to go much higher than that, it may be a sign of a poor investment decision. Real estate can be one of the most lucrative long-term investment opportunities—but only if you make a smart deal when you purchase.
- Far more expenses go into the homebuying process than just the down payment and mortgage. Be prepared to cover additional costs and fees such as closing costs (which could be
2% to 5% of your mortgage balance),home appraisal and inspection fees, realtor commission, underwriting fees, insurance and property taxes, ongoing repair and maintenance costs, real estate attorney fees and more. Keep all of these fringe costs in mind as you consider buying a home. And you should have emergency savings set aside so you can pay for any additional unforeseen costs that may arise.
You may want a house right now, but take the time to weigh all of the short- and long-term implications this decision could have on your financial health before putting in your first offer.
How to save money for a house (9 realistic strategies)
Now that you have a better idea of how much to save, look at your budget to see where you can save. Once you assess your financial state, you can work to maximize your savings. Try these strategies:
1. Minimize impulse buys
Mindless purchases can quickly tamper with your savings goals without you even realizing it. Pay close attention to your spending, and decide if you want to put that money toward a purchase or your home savings goal.
Anything from how often you go to restaurants to taking advantage of weekly retail sales may be a viable culprit. Take a hard look at your weekly spending and see where you can pull back a little.
2. Get a higher-paying job
Have you been thinking about asking your boss for a raise? Now may be the time to act. Justify your request with evidence of your achievements and added value. When you get your raise, avoid giving in to
If getting a raise is not in the cards, there's good news: It's an employee's market right now. Many employers have several positions to fill and are beefing up salaries, benefits and perks to attract more applicants. If your current employer can't see your value, maybe it's worth exploring a new company. Add that bump in salary to your savings with each paycheck and watch your goals become a reality.
3. Explore deals with service providers
Deals and promotions are often available to those who ask. If you're current with your payments, service providers—including cell phone, internet and cable companies—may offer discounts and other ways to save to keep you as a loyal customer. There may even be an offer to save on your car insurance or utility payments.
4. Cancel unused subscriptions
Market research company C+R Research conducted a survey in which 42% of respondents admitted to having subscriptions they
5. Add a part-time job or side hustle
The extra money from part-time jobs or side hustles can go a long way, particularly if you follow a budget and have all of your expenses covered by your full-time job.
You can get a part-time job with an employer for a consistent, predictable income. Or, set your own schedule as a freelancer, ride-share driver, grocery shopper or pet walker, to name a few. The key is to stick to your typical spending habits so that this additional income can go right into your savings account.
6. Refinance debts
It can be harder to know how to save for a down payment when you're
The money you save in monthly payments can be used toward student loan or other debts (and reducing your debt-to-income ratio) or saving for your down payment.
7. Rent out a room or parking space
If you have the space, it may be worth exploring what you could earn by renting it out. Apps such as Airbnb, Turo and SpotHero allow you to rent out rooms, parking spaces and your car to earn extra income.
8. Add additional income into your budget
As you explore different savings strategies, consider any extra money you're already receiving.
It's easy to blow through
9. Downsize where you can
Downsizing requires a little more effort than canceling Netflix, but the rewards can be huge. Moving into a smaller apartment or selling a car you no longer need can really move the needle on your home savings goal. This may especially be appealing if you're also facing a major change, like
Downsizing from a two-bedroom to a one-bedroom apartment could
Owning your own home is possible
This is not an easy time to be in the housing market, but there is hope for those looking to buy a home in the next few years. It's all about patience and strategy. No matter how large your savings goal, start small and take it one step at a time.