How to save money for a house: 9 realistic strategies

Buying a home is a major step in life—and an equally major purchase. An inflated housing market, low inventory and a pandemic have only complicated matters, however. These modern factors have influenced some traditional wisdom about how to save money for a house.

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.

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.

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 no more than 25% of your monthly income after tax. This rule of thumb ensures that you leave room in your budget for other financial goals, such as saving for retirement or a child's college fund.

You can use a mortgage calculator to figure out how much you can realistically afford each month. Compare that monthly payment with what you pay now, and consider trying out a "test budget" for a few months to see if it works with your lifestyle.

In the past, lenders would require a 20% down payment—but this is no longer the case. The average down payment on a home is currently 13%. Depending on how you qualify, you could pay as little as 3%.

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 0.3% to 1.2% of the loan's principal balance. This expense is added to your monthly mortgage payment until you reach 22% equity in your home.

If you need help figuring out how substantial your down payment can (or should) be, consider working with a financial advisor.

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 fixed mortgage is 5.89%. Rates are expected to continue rising in the face of inflation and economic uncertainty, both domestically and globally.

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 score or 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 price at 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.

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:

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.

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 lifestyle inflation and dedicate the full income growth toward your home savings goal.

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.

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.

Market research company C+R Research conducted a survey in which 42% of respondents admitted to having subscriptions they completely forgot about and were no longer using. Though streaming services may be $4 here and $10 there, they add up quickly. Page through your monthly statement, highlighting your subscriptions. From there, consider which ones you'd be comfortable canceling for a few months so that you can bulk up your savings.

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.

It can be harder to know how to save for a down payment when you're carrying debt. But there is a way to do both. You can lower monthly payments on high-interest debts by refinancing to 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.

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.

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.

As you explore different savings strategies, consider any extra money you're already receiving.

It's easy to blow through tax returns, bonuses, and inheritances without a plan. If your budget directs windfalls of cash toward your home savings, you can reach your goal that much more quickly.

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 retirement.

Downsizing from a two-bedroom to a one-bedroom apartment could decrease your rent by about 16%. That can be a huge bump to your savings account.

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.