A couple moving into their new home

Saving Money for Your First Home

Updated July 2, 2019 . AmFam Team

Want to save up for a house but don’t know where to start? Learn how to save up for a house with these tips from American Family Insurance.

Owning a home is a dream shared by many. But saving enough money for a down payment might seem like a far-off plan. After all, you’ve got student loans to pay off, you’re working on establishing your career and you’re not sure where you’ll be in 5 years. Renting an apartment might seem like a better option right now.

Believe it or not, this is the perfect time to start saving for your first home! It pays to have a plan. So follow these steps, and you’ll be on your way to achieving your dream of homeownership in no time.

What to Consider When Saving for a House

Buying a home will pull your finances in many directions. Yes, you’ll need to have cash saved for a down payment on your new home. But what about the funds that will be due at closing? Have you accounted for upgrades that may be required to get your new home into a habitable state? What if you need a new roof — where will those funds come from? Do you have a budget for movers built out yet?

Even though it can be a bit daunting, with the right amount of preparation and careful savings, you can close on the home you’ve always wanted and afford to do so too. Our hidden closing costs calculator is a great way to review common expenses that occur at closing.

Tips for Saving Money for a House Faster

Finding the money to save when you’re already living on a tight budget can seem like a big ask. But with our tips on shaving away at monthly expenses and doing away with luxuries, affording a new home can be possible.

Meet with a mortgage lender

This may seem like an extreme step to take right away, but it’s important to be informed before you start saving for a home. An experienced professional will estimate what kind of mortgage you’ll likely qualify for and work with you to figure out your timeline. Plus they’ll help you understand all the complexities and costs that come with buying a home — think down payments, home inspections, interest rates and more.

Plan out your savings timeline

Based on your discussion with the mortgage lender, determine how much you need to have saved for a down payment and how long it’ll take you to comfortably do that. Set realistic yearly savings goals and make it a priority to stick to them so you can stay on track.

Begin your budget

It’s time to put pen to paper and map out your monthly budget. Now that you’ve got lofty home savings goals, you’ll need to shift your spending habits and stay consistent about meeting those yearly targets. This means cutting back on expenses and holding yourself to new rules and stricter dollar limits. It’ll be a change, but you’ve got this!

Have an emergency fund

Life happens, so it’s good to be prepared for the unexpected. Have an emergency fund set aside — and contribute to it regularly — to pay for things like car repairs, uncovered medical expenses and temporary unemployment. This way you won’t have to dip into your home savings when life throws you a curve-ball.

Use a savings account

A home is a big purchase, so you’ll want to be as consistent and secure as possible when it comes to your savings tools. Avoid playing the stock market or using other high-risk investment vehicles when saving for a home and opt for a tried-and-true savings account. Old-fashioned is the way to go!

Opt for automatic savings

Make saving for a house easy by choosing to have a percentage of each paycheck automatically deposited into your savings account. This way you’ll be blind to the transaction and won’t be tempted to spend the money.

Eliminate the luxuries

Tightening your purse strings and cutting out the extras is worth the payback later. It may be hard to get used to, but you can ease into it. Start by making your own lunch for work every day for a week, putting your Hulu subscription on hold for a month or skipping the clothes shopping for a season. You’d be surprised at how much these little changes can save you — and you might find these temporary sacrifices become smart, long-term habits!

Stash away the extra cash

Tax returns, holiday bonuses, cash from your side hustle — this is all money that falls outside of your normal income. So why spend it? Stick to your monthly budget no matter what, stash the extra in your savings and see how much faster you reach your home savings goal.

Amp up your credit score

Having good credit will make it easier for you to borrow money, and it’ll help you get a better mortgage rate, saving you tons of money over the life of your home loan. So it’s smart to keep on top of your credit rating. And don’t be afraid to actually use it! In fact, it’s a good idea to consistently use about 35% of your available credit limit on your card as long as you’re always paying your bills on time.

Find a roommate

If you’re living in a space where another room’s available, consider finding a reliable roommate. You’ll be able to shave off a fair percentage of monthly utility expenses and cut down on your rent as well. With a roommate picking up some of the expenses, you’ll be able to get that down payment cash saved more quickly.

Start a side job

Picking up a little additional work can help to inject new funds into your earning routine, and that’s money you can point directly toward savings. New jobs also open you up to new work opportunities and the chance to improve a skillset. You stand to be more marketable and better skilled as a result. Here are a few simple side jobs that can generate a little extra cash:

  • Ride share driver
  • Pet sitting or dog walking
  • House sitting
  • Babysitting
  • Personal assistant
  • In-home caregiver

Saving for a Home Doesn’t Have to Be Scary

Buying a home is a big life step! But it doesn’t have to be so daunting. Take these smaller steps to start saving now and make the transition into homeownership as easy on your finances as possible. It’s smart to be proactive. While you’re saving up and putting the cash together for a home purchase, remember to check in with your American Family Insurance agent. (Opens in a new tab) They’re a great resource for pointing you towards coverage that can help protect what matters most to you.

This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.

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    Every situation is different, so it’s important to do the right research and choose the best option for you. Luckily, we’ve done some of the breakdown for you to help you decide whether to pay off your student loan entirely or buy a house.

    Can Student Loans Affect Buying a House?

    Typically, student loan debt doesn’t prevent you from getting a mortgage. The biggest thing to note is that student loan debt does influence your debt-to-income ratio, which is a factor lenders consider before giving you a loan. It can also affect the interest rate you pay on your mortgage.

    Buying a house with defaulted student loans

    If you’ve defaulted on your student loans, it’ll be more difficult — but not impossible — for you to get a mortgage. Because defaulting negatively affects your credit score, lenders will be less likely to want to give you a loan or will charge a much higher interest rate on a loan.

    Getting a home loan with student loan deferment

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    Should You Pay Off Student Loans Before Buying a House?

    Buying a house is expensive, there’s no doubt about that. It can seem smart to hold off on house shopping while you still have student loan debt, and it can be even more difficult to save for a house if you’ve got a high debt-to-income ratio. But if you have enough income to handle the payments for both, you may want to consider investing in your first home.

    Signs You Should Pay Off Student Loans

    When considering whether to pay student loans or save for a house, there are a few factors that can help you decide if paying off your student loans should be a priority.

    Your debt-to-income ratio is too high

    If the amount of money you bring in monthly or yearly is almost the same as the amount of money you pay out in debts — like student and car loans or credit cards — it may be best to pay down your debt before buying a house.

    You’ve defaulted on your loans

    Defaulting on your loans has a severe negative impact on your credit score, which tells lenders that you’re a bigger risk to take on. Work on improving your credit score before shopping for a mortgage.

    You’re struggling to make payments

    If you feel like you’re living paycheck to paycheck or struggling to make payments on your loan every month, it’s best to hold off on saving for a house. Need help keeping track of your student loan payments? Try our student loan payment tracker to get organized.

    You haven’t saved for a down payment or emergency fund

    Before you start picking out which houses you want to tour, you should take a look at your savings. If you don’t have enough for a 5 to 10 percent down payment or enough as an emergency fund for home expenses — like a broken dishwasher or damaged roof — take more time to put money away for your first home.