There’s the listing price. And then there's everything it takes to get there. Build up your financial savvy and savings to help make your dream home (or your starter condo or anything in between a reality).
While it’s tricky to amass thousands of dollars for a down payment when you’re already stretched to the max with expenses like rent, utilities, student and/or auto loans, transportation, and possibly child care, it is possible.
If you're hoping to be a homeowner in the future, here are our best tips for how to save for a house.
Track your spending, then try our seven ways to trim expenses
Sit down and truly map out what you spend in a given week, month, quarter, and even year.
- Weekly groceries, toiletries, gas and public transportation, monthly utilities, rent, and health care are all significant expenses to factor in.
- Include debt like student loans and car payments.
- Remember going out, new clothes, haircuts, and other expenses that can crop up regularly but may not appear in a month's account statements.
- Consider semiannual or annual big-ticket items — is there a family vacation you always go on and pay your way? Are you a huge gift giver during the holidays?
- Track any seasonal sport or activity you love, including passes and subscriptions.
- If you have a young child in day care or need to pay for summer camp, after-school programs, clubs, or sports — don't forget to include those, too.
- Build in a buffer for incidentals — rainy days happen.
Put it all into a spreadsheet or leverage an online budgeting tool or app like RocketMoney to see what you're spending and where. Divide expenses into Must Have and Nice to Have. As you move expenses between the two buckets, consider removing some of the Nice to Haves and creating a new bucket dedicated to Savings.
Trim
Now, think about what you can trim — Nice to Haves and anything else! Many younger Americans roll their eyes when told to skip the latte. Cutting your discretionary spending and expenses is probably the most obvious tip to save money — but saving may include some less obvious options.
- Cancel memberships and subscription services you don't need or use often enough. For example, free online fitness classes can help you stay fit while you save on a gym membership.
- Cook at home more and meal plan to save on dining out and food waste. This can include hosting potlucks and dinners instead of expensive meals out with friends.
- Buy generic products from grocery or drug stores (and see if you notice the difference!).
- Negotiate lower costs or fees with your credit card companies, cell phone and Wi-Fi providers, and streaming subscriptions.
- Take advantage of Facebook marketplace or other sites to buy gently used things and explore your local Buy Nothing groups.
- Patch or mend clothes before you opt to buy new ones. Learning to sew and darn is not just cost-effective; it's a pretty handy skill!
- Check out your local library; it does way more than offer books! You can also borrow tools, video games, cooking and baking equipment — and get passes to local museums and attractions. Public libraries also host tons of community events ranging from lectures to concerts.
Like we talk about with housing: Consider downsizing instead of choosing what to upsize. This goes for all expenses, including shopping, entertainment, and more.
Manage, reduce, or eliminate your existing debt
Yes, a mortgage is likely one of the most significant loans you'll take out, but there are two big reasons to be aggressive with other debt you might carry. First, a high debt load may make it harder to qualify for a mortgage. That's reason enough – but paying off your credit card interest while not knocking down the principle is likely shockingly expensive. Focus on paying that off first or transfer high-interest debt to a lower-interest card.
Reducing debt also goes for student loans. Look into refinancing them at lower payments if possible.
Find out what you qualify for today by calling (877) 528-1481, option 4.
Explore what you can pause or reduce paying into
If you have a baby or young child and have been socking money away into a 529 plan, you might also be feeling the pinch as your family grows. Some homebuyers consider pausing monthly contributions while saving up for a home. Younger folks may temporarily divert contributions from 401(k) or IRA retirement plans into a savings account for their down payment. Again, this is not an option for those closer to retirement and should only be temporary.
If pausing causes too much stress, consider reducing your contributions. If you typically put $500 into a 529, put $250. Suppose you contribute 15% of your gross income to retirement savings. In that case, you might reduce it and automatically put the remainder into a dedicated housing fund.
Map out the impact of any of these choices using online tools or a spreadsheet that can show what delaying or decreasing contributions might do to your future plans.
Automate, automate, automate
For any savings goals, including saving for a downpayment or other home ownership-related expenses, reduce the friction by automating as much as possible and using technology to help you save. Saying you'll take 10% of every paycheck is excellent until you forget or decide to skip a month.
A tool like Acorns or Chime makes incremental work of saving by depositing the difference or rounding up every purchase into an account.
Beyond automation, you can make one-off deposits in your savings accounts when you get a bonus or have extra cash on hand.
Save in smart places
If your savings goals are in the years-not-months category, look into accounts that may provide a higher interest rate than your standard savings account.
High-yield savings accounts, a money market account, or some CDs may be a path toward ticking up that balance!
Learn more about savings accounts
Assess your current housing situation
Moving is stressful — no lie. But if you're motivated enough to take more significant steps to get there faster, you could look assess current housing situation. Could you move home or move in with family, move into a smaller apartment, or bring down your rent — and bring in extra money — with a roommate? Don't compromise your quality of life too much, but you might realize a great apartment in an up-and-coming neighborhood provides value and savings beyond your current place.
Ask for money instead of gifts
Depending on cultural sensitivities or expectations, holidays, birthdays, and other occasions may be a time to ask for money instead of other gifts. One more modern trend is to ask for help with a down payment on a wedding registry. Be sure to gut check that with a partner, and don't expect gifts to fully fund anything! Some people are uncomfortable gifting cash. If they opt for socks or candles, you can enjoy them in your new home as soon as you've saved enough.
Some older people give out inheritances or parts of estates while still alive. If this is something your family has discussed in the past, help with the costs related to homeownership can be something they'll support. Likewise, if there are any trusts of which you are a beneficiary, buying a home can be a reason to access funds that may be otherwise safeguarded.
Invest in yourself
The quickest way to homeownership is to earn more. Improve your existing skills, hone your transferable skills, and explore ways to add to your existing skill set. We encourage you to do this by independently researching articles from trusted sources online and even through publications at your local library!
Seek out a mentor at work, whether a formal or informal relationship. Down the line, you can pay this back and mentor someone yourself. Explore opportunities to network with other professionals.
Look for training opportunities and coursework. If you’re concerned about cost, talk to your employer about reimbursement, programs offered by your work, or on-the-job training.
Set specific, measurable goals to advance your career and reach a higher level of income.
Consider ways to earn a little extra
If you've got the time or the talents, you can lean into those to generate extra income. While it's not for everyone, some people are up for a side gig or second job working nights or weekends. You might shop or deliver food or goods, drive folks around, or look into hourly or freelance work doing more of your day job. Be sure to research and follow tax rules, as many gigs or freelance work won't take required taxes out beforehand.
Keep that emergency fund
It may be tempting to raid the rainy day piggy bank to add to your down payment fund. We recommend being very cautious about that. Life always has unexpected twists and turns, and planning for financial emergencies helps keep your main goals and budget on the right track.
Starting to save or already have that downpayment nest egg?
We’re here to answer any questions you have about mortgages. We’re experts in the homebuying process with a special focus on the local housing market.
Contact a mortgage expert today at (877) 528-1481, option 4.
This article is part of a First Time Homebuying series covering everything you’ll need to know before purchasing your new home.
- Saving for homeownership
- The cost of homeownership
- Shopping for a home
- Homeownership eligibility
- Loan options
- The home purchase process:
