Start Doing These 7 Things If You Want To Save For A House
September 8, 2021
“More than 65% of Americans own a home.” – The U.S. Census Bureau
If you are struggling with saving money to buy a house, then this blog is for you.
With a solid savings plan, you can meet your financial goals and save for a house in your desired time frame. How exactly can you do that? Well, that’s what we will discuss in this blog post.
In this blog post, we will share expert tips on how to save for a house, but before we get to that, we first need to understand how much we need to save in the first place.
How Much To Save For A House
Before taking the first step to save money for a house, you need to have an idea about how much you need to save.
Let’s break down all of the costs involved in buying a house for a better understanding.
- Downpayment – You’ll pay anywhere between 2-5% of the purchase price of the property
- Closing costs – ranges anywhere from 2% to 5% of the price of your house
- Moving expenses – can vary from a few hundred to thousands of dollars depending upon how far and how much stuff you have to move
A great way to get a relatively accurate estimate on a property is by researching the property costs of the neighborhood the house is in. Once you get a relative cost, planning to save gets a lot easier.
Breaking The 20% Downpayment Myth
It’s commonly believed amongst home buyers that you need to pay at least 20% of the downpayment to buy your dream home. Although paying a higher amount of the downpayment may save you money over time, it is not mandatory.
Most lenders would simply ask you to pay for mortgage insurance if you don’t have 20% to pay for the downpayment as a preventive step against default (A default is the condition when the borrower is unable to make his or her monthly mortgage payment on time and falls behind).
How To Save For A House
Now that you know how much you need to save for a house, here’s how you can start saving:
1. Track where your money goes
Wise spending is part of wise investing. And, it’s never too late to start. – Rhonda Katz
If you are not doing it already, start keeping track of how you use your money. Until you know where your money is going, it will be difficult to save all of that money to buy a house.
Here are a few ways you can keep track of your money:
- Take a look at your credit card and bank statements
- Make a list of activities that you spend money on and separate them based on if they are essential or non essential
- Once you have categorized your expenditures, you can easily cut back on the non-essential ones.
- The money that you will save can now go directly to your ‘Saving to buy a house’ account.
The key here is to make a monthly budget and sticking to it.
Downsizing in a big or small way will always help when it comes to saving money.
Think about it. Is that additional parking space doing you any good? Can you do without that extra guest room?
Of course, you can, especially when you know doing this can help you save for your dream home.
Move to a smaller apartment. This will reduce your monthly expenses, which you can easily divert to the savings for your home.
If you don’t want to shrink the size of your home, you can always consider moving to a more affordable neighborhood.
Or, how about selling that additional car for family members which you only use once in a while.
Getting rid of these things can contribute immensely to your home fund.
3. Save your fun money
A work bonus, holiday allowance, a gift from grandparents, or an unexpected tax refund.
Windfalls are the term they use for it – any extra money that you earn besides your regular monthly earning.
You might typically use this amount as your fun money and spend it on a vacation or a celebration. However, when you are looking to save for a house, it’s better to spend your fun money rationally and sparsely.
Don’t forget – every penny that you save will be going towards the ultimate prize i.e. saving for your dream home.
4. Make more money
While saving money for a house is a great idea, finding ways to make more money at the same time is even better.
You can ask for a raise at work to begin with. If not, then you can start looking for side hustles.
For instance, freelancing is one of the best ways to earn money from home while using your skills. Start driving for ride-sharing companies on weekends.
In fact, you will be amazed to know how much money people can make by doing things like pet sitting.
Pick a side hustle that suits you and start earning more money that can be put towards your home fund.
5. Get a separate savings account
People are always deterred from spending money if their money is in a bank account that is hard to access.
Creating a savings bank account is a great way to save money for a house without blowing that money on impulse buys. Decide how much you want to save every month. And then set up an auto-debit from your primary account into the account where all your money for buying a house goes.
This can be a smart and effective way to avoid bad habits like impulsive shopping, unnecessary spending on food and drinks, and so on.
You don’t need to be a miser to save for a house, you just have to be a little smarter.
6. Vocalize your goals
You become more accountable towards your goals when people are supporting you for achieving them.
This is why it’s important to share your goal of buying a house with friends and family.
Tell them you intend to start saving for it. You never know, they might share some life-changing advice. Or, maybe they can share their experience about how they saved when they bought their first home.
At the same time, you can also expect to get the moral support you need in your endeavor.
7. Get out of existing debt
A key thing to remember when planning to save for a house is that paying off your current outstanding debt is as important as saving money.
This is because your debt to income ratio is going to have a big impact on your credit score, which is going to directly influence your ability to score a mortgage.
For those of you who don’t know what debt to income ratio is – it is the measure of your ability to make a monthly payment for a loan based on your existing monthly debt payments and your gross monthly income.
If you have a high debt to income ratio you might not qualify for a mortgage. Even if you do, expect to have sky-high interest rates.
To prevent all of this from happening, you need to start paying off your debt.
The Bottom Line
Those were our smart tips on saving for a house that you can easily implement.
As you can see, there are several ways to save money for buying a house. However, all of it begins with smart planning.
From making an accurate assessment of how much to save for a house to cutting down your unnecessary expenses, it takes preparation and discipline to save for a house effectively.
Now, the question is – are you ready to take these steps in your life?