How To Save For A House: Top 5 Tips For Home Buyers

First-time home buyers must take several steps before they can call themselves homeowners. One of the biggest steps is saving for a house, and it can require months or even years of dedication and financial discipline. To have enough money to cover a down payment, closing costs, moving expenses and other fees that often come with buying a house, you’ll need to put together an action plan.

Fortunately, we’ve created this guide focused on how to save for a house and the costs you can expect. Also included here are some additional tips on saving for a house, followed by FAQs and their answers.

Let’s get started.

How To Save Up Money For A House In 6 Steps

Consider the following steps involved in successfully saving for a house.

1. Understand Home Buying Costs

First, you’ll need to identify a specific amount of money to save based on your financial situation and the home you want to purchase. Here are three major costs to factor into your home buying budget:

• Down payment: A down payment is usually a percentage of the purchase price. Some financial experts recommend a 20% down payment, but depending on the type of home loan you take out, you may be able to put down as little as 3% or avoid a down payment entirely.
• Closing costs: You’ll also need to pay closing costs, which are typically 3% – 6% of the loan amount. You may be able to negotiate with the seller to get them to pay a portion of your closing costs.
• Moving costs: The cost of moving will depend on whether you hire professional movers, how far you’re moving and the company you choose. However, on average, a local move costs in the $800 – $1,600 range, while a long-distance professional move costs in the $2,200 – $8,000 range.

2. Determine How Much House You Can Afford

Since your down payment and closing costs are a portion of the sale price, you’ll need to know the home price you can afford. To find this out, you can consult an online resource.

The Rocket Homes^SM online home affordability calculator allows you to enter your income, monthly debts and expected down payment to uncover the house price and monthly mortgage payments you can afford. You can use your results as a reference to more clearly identify how much you need for a house so you can start saving.

We’ll put this into perspective below. The amount you need to save for a $200,000 home might break down as follows with a conventional mortgage loan:

3. Establish A Timeline

After deciding how much to save for a house, it’s time to come up with a realistic timeline so you can determine how much you need to save each month to hit your goal. For this, you’ll simply divide your savings goal by the number of months you have to save.

Let’s say you plan on purchasing a $200,000 home, like in the example above, and you decide to save $6,000 for a down payment. If you save an additional 3% for closing costs, that’s another $6,000. And, finally, you decide to save $2,000 for moving expenses, for a total of $14,000.

If you give yourself 2 years to reach your goal, you’ll need to save close to $584 per month. If you’re paid biweekly and want to save money out of each paycheck, you’d need to set aside approximately $269 per check. Of course, you can adjust this timeline to best fit your current bills and spending routine.

4. Automate Your Savings

You’ll make reaching your savings goal more effortless by automating your monthly savings. Work with your employer to get a certain amount of your earnings automatically deposited into a savings account each pay period.

You have the option to set up a high-yield savings account just for buying a house, so you’ll earn interest on your savings. Remember, it’s important to give yourself some wiggle room so you can save and pay all your bills on time while also accounting for any financial emergencies.

5. Limit Your Spending

If your savings goal isn’t possible based on your current spending habits, you may need to cut costs. Eliminating unnecessary expenses like subscription services, eating out and online shopping can help you save more toward your house.

Keep in mind that changes to your subscriptions can be temporary, meaning you can resubscribe once you’ve reached your goal. For example, you might decide to pause a pricey gym membership in favor of using at-home equipment or going for runs in your neighborhood until you’ve saved enough.

6. Increase Your Cash Flow

The best way to save for a house is to increase your income. Ways to potentially boost your cash flow include:

• Asking for a raise: If you’re due for a compensation review, asking for a pay increase can help you bring in more money you can use for a down payment and closing costs.
• Taking on a side hustle: Consider taking on some part-time or freelancing work in your free time to boost your income.
• Getting a roommate: Think about taking in a roommate to relieve housing costs and free up some cash for your down payment fund.
• Having a garage sale: Have any furniture or unused items sitting around? Set up a garage sale to rack up some extra cash and clear up some space at the same time.

Additional Tips For Saving For A House

Here are a few other miscellaneous tips that can help first-time home buyers reach their homeownership goals:

• Downsize. If your current living situation is too expensive, one way to significantly cut your budget is by downsizing to a smaller property. This will allow you to save that extra money for your future home purchase.
• Ask for help. Another way you can potentially accelerate your savings goal is asking friends or family members if they can assist with any of the costs associated with your home purchase. If you feel comfortable asking, gift money can be a big financial help.
• Research home buyer programs and grants. The U.S. government offers a variety of first-time home buyer programs, grants and down payment assistance programs through lenders. Many state and local governments as well as nonprofit organizations offer similar programs to encourage homeownership.
• Pay off high-interest debt. Before you start saving, it helps to pay down debts – like credit cards – with high interest rates. You might be surprised to see how much extra money you have to put toward savings with one high-interest credit card paid off. Likewise, you might be surprised to see how your debt-to-income ratio (DTI) and credit score improve.

How To Save Money For A House: FAQs

Before you start building up savings for your house fund, check out these frequently asked questions and corresponding answers that address how to save for a house.

What’s the best way to save for a house?

One of the best ways to save for a house is to maximize your income. Bringing in supplemental income can mean you don’t have to make as many sacrifices with your spending or changes to your lifestyle to save for major home buying fees.

How can I save for a house while renting?

Renters can save for a house by adding roommates, as long as it’s permitted by your landlord and your lease agreement. The more roommates you have, the lower your monthly rent will be since you’re dividing the total rent cost among more people.

How do I know how much to save for a house?

To find out how much you need to save for a house, it’s best to reach out to a mortgage lender. The amount you’ll need will depend largely on your mortgage type’s minimum down payment, the home price and your credit score and debt-to-income ratio. While you can personally calculate the amount to save, a real estate professional or mortgage expert can guide you toward a more accurate amount to strive for.

How do I reduce the money I need to save for a house?

If you want to minimize your down payment, you can look into your eligibility for a no-down payment VA or USDA loan. If you’re not eligible for either, you can seek out down payment assistance. To reduce the amount you’ll owe in closing costs, you may be able to negotiate with the seller on who pays closing costs or temporarily avoid closing costs by rolling upfront fees into the principal loan balance. 

The Bottom Line: Follow These Steps On How To Save Up For A House

Buying a home is a big investment. Saving up for the necessary fees can take quite a while, especially for first-time home buyers. Don’t be discouraged if it takes longer than you planned. Instead, come up with a budget and realistic timeline that allows you to minimize spending and maximize savings. Then, speak with a mortgage expert to make sure you’re financially prepared for the investment.

For a reasonably good idea of the amount you’ll need to spend, apply for an initial mortgage approval. With this, you’ll know how much home you can afford, which will give you an idea of how much you’ll need for a down payment and closing costs.