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How to save money for a house: An essential guide

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Maskot/Getty Images/Maskot

Owning your home offers a chance to plant roots and invest in a community that you can help grow. While this dream is within reach, there are some economic factors at play. Record-low mortgage rates fueled much of the housing demand in 2020 and 2021. But in late 2023, 30-year mortgage rates are around 7%.

While the housing market is hot, you can learn how to save money for a house with a targeted financial approach. Let's review how to set your savings goal, where to keep your home savings and some budgeting tips to get you the rest of the way.

How much should I save for a home?

When considering how much to save for a house, you need to consider two main factors:

  • The down payment: A percentage of the home purchase price you must pay beforehand.
  • The monthly mortgage payment: Your ongoing cost to pay back your home loan, plus interest.

How much you save for these payments and other homebuying fees depends on which of these takes priority, and how it impacts your overall financial health.

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, start by identifying a manageable monthly mortgage for you. Many experts recommend that your mortgage payment should take up no more than 25% of your monthly income after tax. This rule of thumb can 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. A calculator also can give you an idea of other taxes and fees included in your mortgage payment, like property taxes, private mortgage insurance (PMI), homeowners insurance and homeowners association fees, if applicable. 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.

When you're prioritizing the down payment

In the past, lenders required a 20% down payment, but this is no longer the case. The average home down payment was 13% in early 2023. Depending on how you qualify, you could pay as little as 3%. For instance, Federal Housing Administration loans can offer down payments as low as 3.5%. And U.S. Department of Agriculture loans and Veterans Affairs loans don't require a down payment.

That said, paying less upfront can have downsides. With conventional loans, the less money you put down, the more you pay in interest and fees over time. Additionally, putting down less than 20% requires you to purchase PMI. This insurance protects the lender in case you can't make your loan payments. PMI can cost anywhere from 0.46% to 1.5% 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 have other priority payments or know you need more cash available for emergencies, you may have to make a lower down payment to keep fulfilling your daily financial goals.

When you're prioritizing your overall financial health

Depending on your total purchasing power and the wider housing market, you may need to save or spend differently than your peers. Keep these three factors in mind as you plan your saving strategy, as they can impact your overall financial health.

1. Your credit score

If you have a low credit score or are facing considerable debt, that 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 starting the homebuying process.

2. The asking price

In a hot housing market, you may find demand calls for paying above the home's asking price, somewhere around 1% to 3%. Going higher than that may be a poor investment decision. Still, this depends on the house you're putting an offer on—whether it's a fixer-upper or in an area of high demand can make all the difference.

3. Additional costs & fees

The homebuying process involves more expenses than 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. You should also have emergency savings set aside so you can pay for any unforeseen costs that may arise.

Illustration of two hands encircling a house.

Balanced Homebuying® calculator

Make sure your mortgage leaves room for living, saving and giving. Use our calculator to get a recommendation on a target amount to spend on a home.

Try it out

Where should I keep my savings for a home?

Where you put your money when saving for a home can be as important as how much you save, especially in a high-rate economy. High interest rates are currently making it more expensive to borrow money. At the same time, interest-earning savings accounts are more attractive. Here are a few places to save money for a home that can help your money grow while you tackle this life goal.

  • Money market accounts: Money market accounts earn interest, and 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: High-yield savings accounts could 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): 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.

Budgeting tips for your house savings

Saving money for a house starts with breaking your total savings goal into a monthly target. For example, if you want to save $10,000 for a down payment in 12 months, you'd aim to put away roughly $850 per month—ideally into one of the savings accounts outlined earlier.

A budget can act as a spending guide to help you achieve your monthly target. You can use the following budgeting tips to grow your home savings even faster.

  • Automate your savings. Make reaching your savings target as easy 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 exploring where you can spend less. 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 in your life, 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. 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

How Thrivent can help

When it comes to buying a home, the mortgage lending team at Thrivent Credit Union can help. They focus on finding out what’s most important to your needs and offer guidance based on your situation. They will work to create a home buying team for you, with your Thrivent financial advisor and your realtor, to find the home that brings balance to your financial plan.

To learn more, visit Thrivent Credit Union.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

CDs offer a fixed rate of return. The value of a CD is guaranteed up to $250,000 per depositor, per insured institution, per insured institution, by the Federal Deposit Insurance Corp. (FDIC). An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. A money market fund seeks to maintain the value of $1.00 per share although you could lose money. The FDIC is an independent agency of the US government that protect the funds depositors place in banks and savings associations. FDIC insurance is backed by the full faith and credit of the United States government.

Thrivent Credit Union is an Equal Housing Lender. NMLS ID 1012971

Deposit and lending services are offered by Thrivent Credit Union, the marketing name for Thrivent Federal Credit Union, a member-owned not-for-profit financial cooperative that is federally insured by the National Credit Union Administration and doing business in accordance with the Federal Fair Lending Laws. Insurance, securities, investment advisory and trust and investment management accounts and services offered by Thrivent, the marketing name for Thrivent Financial for Lutherans, or its affiliates are not deposits or obligations of Thrivent Federal Credit Union, are not guaranteed by Thrivent Federal Credit Union or any bank, are not insured by the NCUA, FDIC or any other federal government agency, and involve investment risk, including possible loss of the principal amount invested. Must qualify for membership in TCU.