Let’s face it – we’re all at home a little more these days. And with being home for many months now with the same people… all day… we start to feel a little restless. Maybe it’s time to start looking for a new home! But how do you start to save money for a house? Lucky for you, I have loads of tips on how to save money for a house and how to make the home buying process go smoothly.
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1 – Do some market research
Before you can determine how much money you need to save in order to put a down payment on a home, you’ll need to do your research. This includes several things:
- Looking at homes for sale in your desired area online (click here to find)
- Drive around the desired area to see what amenities are available (schools, restaurants, stores, etc) and what kind of neighborhood it is
- Talk with a realtor to get a full picture of what’s happening in the market for your desired area
- How fast are homes selling?
- What’s the average price?
- What type of offers are best for this area?
Say you love Sedona, Arizona and would love to live there. But you check the market prices, and YIKES! Homes are selling for over $500,000 there which isn’t exactly the definition of affordable. But once you get outside of the immediate Sedona area, prices go down (just a little!). Extending your search to the surrounding area will give you the best idea of what is truly available.
2 – Figure out how much you can actually afford
Saving money for a house is awesome! But don’t buy a more expensive house just because your mortgage company says you can “afford” it. We ended up house-poor when we bought our house six years ago because there is far more to buying a house than the mortgage payment (more on this later).
I highly recommend using a mortgage calculator like this one from Dinky Town. We use Dinky Town to calculate lots of things because it’s really helpful to know what real numbers will look like. Here’s an example from the Maximum Mortgage Calculator:
This is just an example. But you can plug in your own numbers to see how much you can afford based on your income. This payment calculator lets you play with the amount of your future mortgage and tells you the approximate payment.
2A – Be realistic
While $374,000 sounds like a really nice house, is it actually affordable to you? That monthly payment with taxes and insurance is just over $1,800. Drop the total mortgage down to $200,000 and the payment would be approximately $1,100.
Just because you get approved for a mortgage up to a certain dollar amount doesn’t mean you need to spend it all. Talk with your mortgage banker about the terms and conditions of the loan including the interest rate, type of mortgage, and requirements for down payment.
3 – How much money to save for a house
Now that you’ve done your research, it’s time to set a goal for how much money you need to save to buy a house. The short answer is anywhere from 5% to 20%. The long answer is that it depends on the type of loan you are applying for and your lender.
The goal should be a 20% down payment whether or not it is required. Why? Even if your down payment requirement is only 10% of the total price of the home, that other 10% can be used for paying an inspector, realtor fees, closing costs, and initial maintenance done to your new home.
Let’s use a home costing $200,000 as an example. 20% of that home price is $40,000. You would need to have $40,000 in cash at your bank ready to be wired to the closing company the day that you close on your new home.
4 – How to aggressively save money for a house
Whatever your 20% is, that is bound to be a pretty big number. You might think that you’ll never get there and lose out on your dream home. There are things that you can actively do to decrease your spending and increase your income to help achieve those goals.
Use a savings tracker.
Nothing beats good ol’ instant gratification! Print off a savings tracker (like this one in my Etsy shop) and post it somewhere in your home that you are sure to see it. As you save, you color in the lines of the tracker to show your progress.
Have a no-spend month.
Even if you think you don’t spend a whole lot of money, you’ll find that you have the opportunity to save even more with a no-spend month. Find out how we do no-spend months HERE.
Declutter now, save time later.
If you go through your possessions now, not only will you save yourself the stress of packing later, but you’ll also make a good chunk of change in the process. Selling items you no longer want is a great way to make extra cash to jump-start your down payment savings. More on decluttering HERE.
Cut out unnecessary expenses.
To open the door of opportunity for aggressive saving, you need to cut out your unnecessary spending. Complete a spending audit if you aren’t sure what your spending triggers are. Things like take-out coffee, new clothing, basically anything from Target, extra treats at the grocery store, cable, and more can be things that you cut from your budget. But don’t be so restrictive that you’re miserable! Give yourself grace.
Cancel subscriptions with Truebill.
Truebill helps you cancel unwanted subscriptions without all the hassle!
Create a budget with your new mortgage payment.
Take a few months and budget like you have that (probably) higher mortgage payment plus extra for home maintenance. Does it work with your current spending habits?
Every paycheck, have your house savings go directly into a savings account so you aren’t even tempted to spend it!
Start a side hustle.
Work a little for yourself each week by creating a business you love and will generate a little extra income. Sell your crafts on Etsy or at craft shows. Start a blog. Tutor online. Babysit. Whatever your talent is, you can probably sell it!
Other Home Buying Tips
Check your credit.
If you want a lower rate, you’ll need to have a good credit score. “Good” is considered 660 and above. To check your credit score and see what is reporting to your credit, I highly recommend Credit Karma. Credit Karma allows you to check your credit for free. It looks at TransUnion and Equifax. They also monitor your credit so that you can keep an eye on any suspicious activity!
Don’t Let Your Realtor (or friends) Talk You Into Something You Don’t Want.
Whether it’s that too expensive, but really awesome, house or that fixer upper that you don’t have the knowledge or budget for, don’t let someone talk you into it. Only you know what you truly need in a home to call your own. YOU know your budget. YOU know your lifestyle.
Set a budget BEFORE you buy a house for immediate home updates.
You will at some point find a home that has a ton of “potential”. But you don’t like the paint, the carpet, the countertops, the bathroom fixtures or flooring, the landscaping, all the doors, and the doorknobs just gross you out. Yes, these things are cosmetic and can be overlooked when you see a home for the first time. But taken into account how much that will all cost to upgrade.
So while you’re saving money to buy a house, also set aside money into a home maintenance sinking fund. So when you do purchase the house, you have money in your sinking fund to pay for paint, doorknobs, and carpet.
If you find a home you LOVE but the interior would cost way more to update than you would like to spend over the next 5 years, it probably isn’t the house for you!
Don’t take on new debt while buying a house.
Getting a mortgage is a huge undertaking. Lenders look at your debt to income ratio (how much money your debt payments take up each month) and your credit score. If you have credit inquiries from buying a new car or opening new credit cards, there is a chance your mortgage lender can reduce the amount of the mortgage you’re pre-approved for. Credit checks also affect your credit score!