How to Start Saving for a House
Making the decision to buy your first home is undeniably exciting! And while you may be eager to get your foot in the door of potential homes, it’s key to take time and be savvy about the process. The most important step to take before beginning the home buying process is to start saving your money. Before you can step over the threshold of any home, you’ll need to know what you can afford and how much of a down payment you’ll be making.
This page highlights tips and advice on what you can do to start saving for a house.
5 Steps to Start Saving
You’re probably planning on taking out a loan and paying a mortgage for your new home. But you’ll still need to cover the cost of a down payment, which comes out of your own pocket. That’s why it’s so important to start saving now.
Step 1: Decide How Much Home You Can Afford
So, how much home can you actually afford? On average, buyers should shoot for a mortgage payment that is 25-30 percent of their monthly take-home income. Mortgage payments that are higher than that can cause financial stress, so be realistic. Here’s a closer look at how to determine how much house you can afford.
Step 2: Estimate How Much You Need for a Down Payment
Your mortgage payment is largely dependent on the size of the down payment of the house. For instance, a mortgage payment with a 20 percent down payment will be lower than if you put 10 percent down. How much of a down payment can you afford to make? Can you make a bigger down payment up front so your mortgage rate comes down and better meets your budget?
Keep in mind, you’ll also be paying closing costs and mortgage fees, so you’ll need to start saving for more than just your down payment.
Step 3: Create a Savings Timeline
It’s time to think about when you plan on actually purchasing a home, since this will guide your savings timeline. You’ll need to decide how much time you want to spend saving for a house and how much you need to save per month to reach your identified down payment budget.
The aggressiveness of your savings goals depends on how long you’re planning on saving for your down payment. Do you want to have enough saved for a down payment, closing costs and mortgage fees in one year? That’ll be much more intensive than a two-year or more plan, but it’s doable if you have a plan in place! Sit down and review your current budget to create a realistic savings timeline.
Step 4: Build a Home Savings Plan
Now that you know how much you want to save and have decided on a target monthly savings, it’s time to put a plan in place. Start by reviewing your current budget to identify ways you can cut back on costs or if there are ways you can make more income. There are countless ways to save each month, with some methods more vigorous than others.
Here are a few simple tips to start with:
- Move to a cheaper apartment/rental
- Skip eating out at restaurants
- Make coffee at home
- Pack lunches for work
- Pick up a side job
- Work overtime
Want more strategies to save money? Here’s a more detailed guide to help you save for your first home.