How To Save For A House: The Best Money-Saving Tips

9 Min Read

Updated Feb. 23, 2024

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Homeownership is a dream for millions of Americans, but saving money for a house can feel like scaling Mount Everest. That’s not even considering what you’ll need to cover your living expenses after closing on the home. If you want to buy a home but are wondering how to save for a house, this article outlines how to make it happen.

How Much Should You Save For A House?

The amount you should save depends on a variety of factors, including your income, potential home price and the type of home loan program you’re applying for. Before you decide on a specific savings goal, it can help to consider the following costs you’ll need to save up for:

Down payment: The type of loan will determine the minimum down payment you’ll be required to make. For instance, Federal Housing Administration (FHA) loans require a 3.5% down payment. If you can qualify for a Department of Veterans Affairs (VA) loan or U.S. Department of Agriculture (USDA) loan, you likely won’t have any down payment requirements. While you can get a conventional loan with a 3% down payment, you’ll need to put 20% of the home’s purchase price down to avoid private mortgage insurance (PMI).
Closing costs: Closing costs are the fees – such as the origination fee, home appraisal fee and title fees – you’ll need to pay your lender for originating your loan. Closing costs are typically 3% – 6% of the purchase price of the home.
Moving expenses: Don’t forget the cost of moving your furniture even though it is not directly related to the cost of the home. Depending on the amount of furniture, distance of the move and storage costs, moving expenses can cost you thousands of dollars.

Are There Home Loans That Require 3% Down Or Less?

There are several home loan options that allow you to put down 3% or even no down payment at all. VA loans and USDA loans, backed by government entities, allow you to buy a home with no money down. However, these programs are only available to specific borrowers. Those are veterans, those in active-duty service, eligible surviving spouses or those living in specific rural areas, depending on the loan.

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7 Best Ways To Save For A House

Below are some of the smartest ways to save up for one of the largest financial transactions of your life.

1. Calculate How Much House You Can Afford

Whether you’re a first-time home buyer or a homeowner looking for your next home, if you’re beginning your home buying journey, you need to figure out how much home you can afford, which will be influenced by the following factors:

Monthly income: Your monthly income is any money you receive on a monthly basis. This can come from a salaried job or your personal investments. To determine what monthly mortgage payments you can afford, your lender will look at your gross income, which is the total amount of money you receive before accounting for taxes and deductions.
Loan terms: Your mortgage loan terms will also influence your home affordability. The most common loan terms are 15 and 30 years, and the terms you choose will impact your monthly payments.
Mortgage rates: Your loan terms are determined by your lender and can vary depending on whether you’re getting a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Your rate can also vary depending on your credit score, down payment and other factors.
Credit scores: Your credit score will determine how much money you can borrow and the mortgage rate you’ll earn. If you have a high credit score, you’ll qualify for lower rates and reduce the amount you spend on interest.
Debt-to-income ratio (DTI): Your debt-to-income ratio (DTI) is your total monthly debt payments divided by your gross monthly income. Your DTI ratio is one of the ways lenders measure your ability to repay your mortgage. Most lenders look for a max DTI up to 50%, though it depends on the lender and type of loan. Many financial experts suggest a DTI of 36% or less.

2. Create And Optimize Your Budget

Once you know how much house you can afford, the next step is to create a budget that includes your housing costs. Start by calculating mortgage payments for the first 3 months, as well as out-of-pocket or upfront costs like the down payment and closing costs. From there, you can create a budget to cover these costs.

Explore What Expenses You Can Reduce Or Remove

To get started, pull your bank statements, credit card payments and other personal finance documents. Identify your current expenses and any areas where you can cut back to save more money. For example, you might:

Minimize impulse buying
Eat out less
Cancel subscriptions and services
Explore more affordable cell phone plans
Bundle cable and internet services
Shop around for less expensive car insurance

3. Save Tax Refunds, Bonuses And Raises

It’s tempting to spend that unexpected bonus or tax return but saving it will help you meet your home goals faster. Anytime you receive an unexpected windfall, deposit it into your savings account before you have a chance to spend it.

4. Automate Your Savings

Automatic transfers: If you determine how much you want to save each month, you can arrange automatic transfers to various accounts depending on your goals. Whether they are high-yield savings accounts, money market accounts, or certificates of deposit, you can grow these accounts through automatic transfers without having to think about it.
High-yield savings accounts: These accounts can yield 10-12 times the national average of a standard savings account. Often available with online-only banks, you can earn upwards of 5% interest on your savings rather than the national average of 0.46% for standard savings accounts.
Money market accounts: Money market accounts also offer higher interest rates than standard savings accounts while offering some perks that high-yield savings accounts miss. For example, you can receive a debit card and a check book to withdraw from your money market account which you typically cannot do with a high-yield savings account. However, they may have a limit on the amount of transactions you can make, as well as a periodic fee or minimum required deposit.
Certificates of deposit: Certificates of deposit (CDs) are another alternative to standard savings accounts that allow you to earn higher interest automatically. You can open a CD at any bank by providing a lump sum that earns interest over a fixed period of time. However, you cannot take the money out of the CD without paying heavy fees.

5. Earn Extra Cash With A Side Hustle

If you can’t save enough at your current income level, you may want to take on a side hustle. Working a second job is a sacrifice but earning extra income can add hundreds of dollars a month toward your saving goal. Here are some of the best side hustle opportunities that anyone can take advantage of:

Do Some Freelance Work

There are several platforms, such as Fiverr or Upwork, that can connect you with freelance work opportunities that you can do from anywhere in the world. While you can make more money by showing a specific skillset or previous experience, you can even make money with no previous experience.

Join A Ride-Sharing Company

If you have a car and a cell phone, you can make money with a ride-sharing company like Uber or Lyft.

Try Pet Sitting

If you don’t have a vehicle or live in a more remote area, a great alternative to ride-sharing is pet sitting. Platforms like Rover can offer you a significant amount of money to do what you love, walk and hang out with pets!

Get Paid To Test Apps And Websites

There are countless apps and websites that need users to test whether their products function properly. This is a great service that you can provide on the freelance work platforms mentioned above.

6. Try House Hacking

House hacking offers several alternative strategies to make money off of your home. If you have an extra room, consider renting it out to make extra income. Even if you don’t have extra space inside your home, you may have a parking space that you can rent out to a driver in need. Looking for ways to make money through your home is a great way to earn passive income without having to sacrifice more of your time to working.

7. Look Into Downsizing

Downsizing can help you save hundreds of dollars toward your home closing costs. If you’re currently renting, consider moving to a less-expensive rental or getting a roommate to split rental costs. This may free up a few extra hundred dollars a month, which could translate to thousands over the course of a year that you could save toward your down payment.

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Saving Money For A House: FAQs

Below are some of the most common questions about saving for a house.

When should I start saving for my house?

You should start saving for a house as soon as possible. Saving for a down payment takes time depending on how much you’re able to save each month. If you’re not able to save as much, starting sooner will ensure you have enough time to save up for your down payment to buy a house when you want or need to.

Is it better to pay off debt or save for a down payment first?

Whether to pay off debt or save for a down payment depends on your financial situation. If you have a significant amount of high interest debt, such as credit card debt, it may be wise to pay it off before focusing on saving for a down payment. If that debt gets out of control and you miss a payment, the effect on your credit score will make it even harder to qualify for a home loan.

Can I buy a house with no down payment?

Yes! VA loans and USDA loans allow borrowers to buy a house with no money down. However, there are specific eligibility requirements you must meet to use these types of loans.

The Bottom Line

If you’re looking to purchase a house, it’s important to calculate how much home you can afford, draw up a budget and start saving for your down payment.

Need help figuring how much home you can afford? Start a mortgage application today and see how much you qualify for.