How To Save Money For a House
For most people, the prospect of buying a house can feel daunting. But it’s not impossible! With rising mortgage rates, having a proper down payment has never been more important. Being able to come up with a 20% down payment won’t be easy, but with a plan, you’ll be one step closer to your dream home. So get started today!
When should I start saving for a house?
If you’re thinking of buying a house, you’re probably wondering when you should start saving for a down payment. The short answer is: as soon as possible! A down payment is typically a percentage of the purchase price of the home, and the more money you can put down, the lower your monthly mortgage payments will be.
That said, there’s no need to wait until you have a huge sum of money saved up before you start looking for a home. Many lenders offer programs that allow buyers to put down as little as 3% of the price. And if you don’t have enough cash saved for a down payment, there are other options available, such as taking out a personal loan or using a 401(k) loan.
Decide on a down payment amount
There are multiple types of loans you can choose from, first, you should speak with a mortgage loan officer and find out what works best for you. If you plan to purchase a home with a traditional home mortgage, it usually includes a down payment of 20% to avoid additional monthly payments through PMI. PMI costs between 1 % and 11% of the total loan balance and this fee will be added to your monthly mortgage payment.
FHA or VA
If you think you can never save 20%, you aren’t alone in this dilemma. There are other options such as FHA and VA loans that allow you to put down as little as 3.5% or 0%, respectively. However, there are some disadvantages to these types of loans, such as having to pay mortgage insurance or a funding fee. So be sure to weigh the pros and cons before deciding on one of these loan types.
Research Home Prices
If you’re thinking of buying a house, it’s important to do your research first. Not only will this help you figure out how much you can afford, but it will also give you an idea of what the local housing market is like. This information is essential if you want to get the best deal on a home.
One way to research local home prices is by checking out online real estate listings. This will give you a good sense of what the average price for a home in your area is. However, keep in mind that these prices may be higher or lower than the actual market value, depending on the current state of the housing market. My personal favorite is using zillow.com and looking through the recently sold in your area. This can give you a good grasp of the price houses are actually selling for.
Another way to get an idea of local home prices is by talking to an experienced real estate agent. They will have up-to-date information on what houses are selling for in your area and can provide valuable insights into the local housing market. Real estate agents are professionals who specialize in selling houses, so be sure to talk with a few of them and get their thoughts on the matter.
Add in estimated closing costs
When you purchase a home, the downpayment is not the only upfront cost that you need to take into account. One such cost is the closing costs, which can amount to thousands of dollars. Here’s what you need to know about them.
The type of loan
The amount you need for a down payment will depend on two things. The first is the home’s purchase price, and the second is the type of loan you have. Some loans only require 3% down which will greatly reduce your down payment. These types of loans are great for first-time home buyers, or people with less money to put down. But, these types of loans are usually less desirable for sellers, so you may have issues locking in a contract when the market gets hot!
Private mortgage insurance or PMI
To avoid paying private mortgage insurance or PMI, you will need to put down at least 20%of the purchase price. On top of this, you will also need to cover the cost of closing. This is usually between 3%-6%, so for a $250,000 home, you are looking at an extra $7,500-$15,000. There are options to ask for a seller’s assist, but with the current market conditions, you will be hard-pressed to get that into a contract.
Calculate how much my down payment will be
So let’s look at an example of how much you will need to bring to the closing for a $250,000 house. First, you will need 20% of the purchase price or $50,000. Secondly, you will need to come up with approx $12,000 to cover closing costs. This is a combined cost of $62,000 due at closing for a house costing $250,000.
So how do you save up that kind of money? It usually takes around 5-10 years to save up for a 20% down payment on a house. But it all depends on your financial situation and how much you can save each month. The more cuts you make and the sooner you start the more likely you will meet your goals.
Is it worth saving for a down payment?
Is it worth saving for a down payment? There is no one-size-fits-all answer to this question. It depends on a variety of factors, including the type of loan you have, the interest rate, and your monthly mortgage payments. Depending on how much house you need, you always have the option of downsizing and lowering your down payment, including your monthly payment.
You can always lower the amount you need to save by also going with a VA or FHA loan instead. However, there are some disadvantages to these types of loans. Besides higher fees, they are also less desirable to sellers when there are multiple offers on the table. If you are attempting to buy a home in a hot market, you will probably find yourself losing out to traditional loans.
How to save money for a house
Is it better to pay off debt or save money for a down payment first?
It can be difficult to save for a down payment while you are also paying off debt. On the one hand, you want to get rid of your high-interest debt as quickly as possible. But on the other hand, you need to save up enough money for a down payment to avoid paying mortgage insurance. So which is more important: getting rid of debt or saving for a down payment?
There is no easy answer, and it depends on your specific situation. If you have high-interest debt, such as credit card debt, then you should focus on paying that off first. This will save you money in the long run, because you will be paying less interest over time. It is also not a good idea to be holding onto “bad debt” like this while shopping for a house. If you can get rid of this debt for good, you’ll notice a significant difference in the quality of the property you’re looking for. But if your debt is low-interest, such as auto loans, then it might make more sense to save for a down payment. The key is to make a plan and stick to it!
Open a high-yield savings account
Saving for a down payment on a home can be difficult, but it’s important to do everything you can to save as much money as possible. You can create a “down payment fund” by opening a high-yield savings account. High-yield savings accounts pay more interest than regular savings accounts, so you can save your money faster.
Not putting your cash into an investment account and the stock market may seem counterintuitive, but we are focusing on capital preservation while we save. If you choose to save during a downturn in the market, it may extend the amount of time it takes to reach your goals even longer. Save investing in stocks for your long-term saving goals.
Determine a monthly or per paycheck savings amount
Do you already put extra away each month into retirement savings or a money market account? You can put this on pause for a few months while you save for a house. Diverting your funds into down payment savings for a short while should be fine if you already have a decent amount saved for retirement.
Saving for a house is similar to saving for retirement as it will increase your net worth. Instead of putting away 10-15% of your take-home pay into your retirement savings, put that money into a savings account until you reach your down payment goal. You could even split it so you reduce your retirement savings by half, and place the other half into your “save for a house fund.” As soon as you have reached your goal you can continue putting that money back into your preferred retirement account.
Start automating your savings
Saving for a down payment on a home can be difficult, but it’s important to do everything you can to save as much as possible. One way to make saving easier is to automate your savings. This means that you will have an automatic withdrawal of a certain amount of money from your checking account into your savings account each month. This can be helpful because you won’t have to remember to save each month, and you will be less likely to spend the extra cash if it is automatically transferred out of your checking account.
Automatic Savings with Acorns
If you’re looking for an easy way to save, you should consider using Acorns. Acorns is a great service that you may have heard of before. It is a smartphone app that helps you save cash by rounding up your purchases and investing the difference into a diversified portfolio. This can be a helpful way to save money without having to think about it too much.
There are many different ways to automate your down payment savings, so find one that works best for you. Some people prefer to have their employer direct deposit a certain amount of money into their savings or money market account each month. Others like to use a budgeting app that transfers the money for you. Whichever method you choose, automation will make saving easier and help you reach your goal faster!
Increase your income
Get a side hustle
If you’re looking to increase your income, there are a few different avenues you can pursue. One option is to look for side hustles that can supplement your primary income. From dog walking to freelance writing, there are several ways to bring in some extra income. The key here is to not undertake a ton of extra debt to finance your new side hustle. Something simple that you enjoy is the ticket here. Selling things you haven’t used in years is also a great way to bring in some bonus money and declutter at the same time!
Ask for a raise
Another option is to talk to your boss about the possibility of working overtime. If you’re able to put in some extra hours each week, you can boost your earnings without too much effort. I am not a huge fan of working overtime to pay for your lifestyle, but when it comes to saving extra for a home for your family it makes more sense. Whatever route you decide to take, increasing your income is always a worthwhile goal. With a little planning and effort, you can soon start seeing those bigger paychecks roll in.
Use your tax refund
Many people choose to use their tax refund as a way to save up for a down payment on a house. While this can be a wise decision, there are a few things to keep in mind. First, it’s important to remember that your tax refund is not “free money.” It’s simply money that you have overpaid in taxes throughout the year.
Also, people tend to use this money to buy wants instead of saving for needs. To keep from this happening to you, tuck this money away into a savings account as quickly as possible. If not you may see this money disintegrate before your eyes! By taking these factors into account, you can make sure that your tax refund goes toward a beautiful new home for you and your family!
Making cuts to your monthly expenses is never easy, but there are ways to make cuts and save more quickly. Take a look at your budget and separate your needs and wants. This will allow you to make a list of things you can start looking at more closely. This could mean canceling subscriptions you don’t use, eating out less often, or finding cheaper alternatives to your regular expenses.
If you’re willing to make a few small changes, you can save a lot of money each month which will help you reach your goal faster. Even if the cuts are for the short term, they can pay huge dividends towards saving up faster. So take some time to evaluate your spending and see where you can make those small adjustments. You may be surprised at how much money you can save by making just a few small changes!
Ask for a gift from your family
Many people save for a down payment on a home by contributing to a retirement fund or by setting aside money each month. However, there are other ways to save for a down payment, including using gift money. If you’re lucky enough to receive a gift from family or friends, you can put that money towards your down payment savings. This can be helpful because it will reduce the amount of time it takes to save for a house.
There are several things you need to keep in mind if you decide to use gift money for your down payment. First, make sure that the gift is yours to use. Some families have rules about who can use gifted money and for what purposes. Second, make sure you understand the terms of the gift. Oftentimes, gifts come with strings attached such as requiring the funds be used within a certain timeframe or for specific purposes only.
Finally, talk to your lender about how much of the down payment can be funded with gifted money. In most cases, lenders require that at least some of the down payment come from personal savings so be prepared to contribute some of your funds as well.
Conclusion
The best way to save money for a down payment on a house is by automating your savings. There are many options out there for you to choose from, so find one that works best for you and get started. You can also pick up extra shifts to increase your income and make cuts to your monthly expenses to save more quickly.
If you’re lucky enough to receive a gift from family or friends, you can put that money towards your down payment savings. Talk to your lender about how much of the down payment can be funded with gifted money. Whatever you need to do, your dream house is out there waiting for you. Don’t waste any more time, start saving for that new life today!
