Are you considering buying your first home? Well I’m sure you’ve wondered how much should you save for a house.
What an exciting endeavor! But before you start dreaming up your ideal home and begin booking tours, you need to figure out how much money you can afford to spend. Opinions on how much you should save for a down payment on a house vary greatly, but there are some general rules of thumb that can give you a good starting point.
In this article, we’ll take a look at some of the most common recommendations and help you figure out how much you should realistically aim to save. Plus, we’ll give you some tips on how you can save for a house!
Buying a House
For many people, buying a house is the biggest purchase they’ll ever make. It’s a huge investment of time, money, and emotion. The process can be both exciting and overwhelming, especially if you’re a first-time homebuyer and there are a lot of important factors to consider; from the location of the house to the size of the mortgage, you need to plan for it all. And of course, you’ll want to find a property that fits your budget and your lifestyle.
With so much to think about, it’s no wonder that the process of buying a house can be daunting. But don’t worry, with a little planning and advice from experts, you’ll be ready to take on the challenge.
Let’s take a look at saving for a house and how you can do so efficiently:
How much should you save for a house?
One of the most common questions people ask when they’re ready to buy a house is, “How much should I save for a down payment?” Unfortunately, there’s no easy answer to this question. The amount you’ll need to save will depend on a number of factors, including the price of the home you’re interested in and the type of mortgage you qualify for.
That said, it’s a good idea to start saving as early as possible so you’ll have a down payment when the time comes. Let’s dive a little deeper into some of the numbers of saving for a down payment:
3% or less
Those working with a limited budget may consider saving 3% or less for their down payment. For example, if you’re looking at a $250,000 house, this would be equal to a down payment of $7,500. You may be able to get by with a lower down payment if you’re willing to pay for private mortgage insurance (PMI).
5% or less
Many financial experts recommend saving at least 5% of the purchase price as a down payment. On a $250,000 house, this would come out to $12,500. This is generally the minimum amount required by most lenders if you’re not paying for PMI.
The 20% myth
One of the most popular pieces of advice is to save up 20% of the purchase price of the house. But is this really the best strategy?
There are a couple of things to consider when thinking about how much to save for a house. First, while 20% is often recommended, it’s not actually required. You can get a mortgage with a smaller down payment, although you may have to pay private mortgage insurance (PMI), just in case you default on your loan.
Second, consider your personal financial situation. If you have a lot of other debt, or you’re not sure you’ll be able to comfortably make monthly mortgage payments, it might be better to wait and save up a larger down payment. On the other hand, if you’re confident in your ability to make monthly payments and you’re eager to buy a home sooner rather than later, a smaller down payment may be the way to go.
The bottom line is that there’s no right or wrong answer when it comes to how much you should save for a house. It depends on your personal financial situation and the amount of risk you’re willing to take on.
Get preapproved to see what you can afford.
When you’re ready to buy a house, the first step is usually to get preapproved for a mortgage. This gives you an idea of how much money you can borrow and makes the home-buying process a bit easier. Going into your house hunting with a firm grasp on how much you can realistically afford will help you avoid becoming emotionally attached to a property that’s out of your price range.
It’s important to remember that pre approval is not the same as final approval, which you’ll receive once you’ve found a home and are ready to make an offer. But getting preapproved is a good first step in the process, and it can give you a sense of how much house you can afford.
How to Save Money for a House
Owning your dream home is the ultimate goal for many people, but it’s a huge financial investment. From the deposit to the furnishings, there are a lot of expenses involved in making your house a home. However, with a little bit of planning, it’s possible to save up for a house without breaking the bank. Here are a few tips and tricks to get you started:
Start with savings, income, and good credit
These three things are key to beginning your home-buying journey:
First, start with your savings. Even if you have a good income, it’s important to have some money set aside for a down payment and other associated costs.
Second, make sure your income is high enough to cover the mortgage payments. There’s no point in buying a house if you can’t afford the monthly payments.
Third, make sure you have good credit. This will help you get a lower interest rate on your mortgage and save you money over the life of the loan.
Build a better budget
One of the best ways to start saving for anything is to build a budget and stick to it–this goes the same when saving for a house. Start by listing all of your income and expenses, including both fixed costs (like mortgage payments or insurance premiums) and variable costs (like groceries or gas).
Once you have a clear picture of your financial situation, you can begin to look for ways to cut back on your spending. For example, you might want to consider eating out less often or downsizing your cable package. Every little bit helps, and over time those savings will begin to add up.
Finally, be sure to track your progress so that you can stay motivated and on track. Seeing the numbers going up month after month will help keep you focused on your ultimate goal: owning your very own home.
Downsizing your living arrangements is a great way to save money for a house. If you’re currently renting a two-bedroom apartment, for example, you could look for a one-bedroom place. This would allow you to put more money towards a down payment on a home.
Downsizing can be difficult, but it’s worth considering if you’re serious about becoming a homeowner. Plus, once you own your own home, you’ll have all the space you need and then some!
Reduce or cut out a bad habit
Most of us have at least one bad habit that we would like to break. Whether it’s spending too much money on nights out or buying too many unnecessary items, those habits can quickly add up and leave us feeling stressed and out of control.
However, breaking a bad habit is easier said than done. It takes time, effort, and a lot of willpower. But if you’re serious about saving money for a house, then it’s time to get tough and kick that habit to the curb.
Consider starting a side hustle
A good way to scrape together a little extra cash is to start up a side hustle–they’re all the rage these days! With a little creativity and elbow grease, you could earn some extra money that can go directly into your savings account. This could be anything from a pet-sitting business to selling hand-crafted items. Or if you’re handy with tools, you could start a small business repairing furniture or doing odd jobs for your neighbors. The key is to get creative and think outside the traditional nine-to-five job.
Ask for a raise
This might seem like a daunting task, but remember, you’re not asking for a handout, you’re asking for compensation that reflects the value you bring to your company. Do your research, know your worth, and be prepared to negotiate. If you approach your boss with confidence and a solid case, you stand a good chance of getting the raise you deserve. So don’t be afraid to ask for what you’re worth–it could be the first step on the path to owning your dream home.
See what other employment options are out there
So you have nothing to offer in a side hustle and your boss said no to the raise. Why not see what other opportunities are out there? Try looking for employment outside of your usual field.
For example, if you’re a teacher, you might consider working as a tutor during the summer months. Or if you’re a lawyer, you might offer your services as a mediator. Not only will this help to boost your income, but it will also give you a chance to explore new career options.
Skip a vacation
At first, the thought of giving up your annual trip may seem downright painful. But if you think about it, there are plenty of ways to stay entertained without leaving town. Try exploring your own backyard–check out that new coffee shop you’ve been meaning to get to. Take some time for yourself, a staycation is the perfect opportunity to relax and recharge. Dig into that pile of books that have been stacking up. Vacation doesn’t mean you have to stay at a fancy hotel and hit the club every night, find ways to relax at home and keep those pennies in your pocket.
Chop down your debt
One of the best ways to save up for a house is to pay off your debts. That may sound like an impossible task, but it’s actually easier than you think.
Start by making a list of all your debts, from the smallest to the largest. Then start chipping away at them one by one. You’ll be surprised how quickly they start to disappear. And as your debts get smaller, your savings will start to grow. Before you know it, you’ll have the down payment for your very own home. So don’t delay–start paying off those debts today!
Rent out a spare room or a parking space
Renting out a spare room in your house for some extra cash is perfect if you’ve got the space and you’re simply not using it. This can generate some extra income that can be put towards your savings goal.
Another option is to rent out your parking space. This is especially helpful if you live in an urban area where parking is scarce. By renting out your space, you can earn a few more dollars while also helping others out.
Automate your savings
When it comes to saving money, automation is your best friend. By setting up a monthly automatic transfer from your checking account to your savings account, you can ensure that you’re always putting away a little bit of money each month without even having to think about it. And the best part is that, over time, those small monthly contributions can really add up!
Additional Costs to Consider When Saving to Buy a Home
Okay, so you’ve been saving up to buy a house. You’ve got your down payment all set aside and you’re just waiting for the perfect property to come along. But before you start searching for your new home, there are a few additional costs that you’ll need to take into account.
Closing costs are the fees charged by lenders, real estate agents, and others when you close on a property. They can add up to several thousand dollars, so it’s important to factor them into your savings plan.
Anyone who has ever bought a house will know that it’s a costly venture. There are mortgage repayments to be made, along with the cost of furniture, decoration, and maintenance. It’s therefore essential to have a good level of cash savings before taking the plunge.
Many people don’t factor in the physical cost of moving from one place to another. In addition to the cost of hiring professional movers (which is not an insignificant expense), there are also the costs of renting a truck, buying packing supplies, and taking time off work to actually get the move done.
Home repairs and furniture
Home repairs can be one of the most unexpected and expensive expenses when you’re a homeowner. Even if you buy a brand new home, there will be repairs that need to be made at some point. And if you buy an older home, you can expect even more repairs.
Furniture is another cost that you’ll need to consider when buying a home. Unless you’re moving into a fully furnished home, you’ll need to buy furniture for every room in your house.
To Sum Up
So, how much should you save for a house? As we’ve seen, the answer is different for everyone. But by following our tips and doing your own research, you can feel confident that you’re on the right track to homeownership.
Have any questions or want more personalized advice? Be sure to check out our FREE web class on budgeting and saving!