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Owning a home is something many people strive for. If you're hoping to have a piece of real estate in your name soon, you'll need to save for it accordingly. Here's how to save for a house.
You might assume that to buy a house, all you really need to do is set a savings goal for a down payment on a home and call it a day. But it's not just your down payment you'll need to save for. You'll also need money for closing costs, emergency home repairs, and the general ongoing expense of owning a home, including the monthly payment you make on your mortgage, property taxes, and homeowners insurance.
Plus, not all down payments are created equal. It's a good idea to put down 20% of your home's purchase price, but you may be able to get away with a smaller down payment.
Figure out what your savings account needs to look like for you to comfortably buy a home. You can do so by pricing out homes in your target neighborhood, seeing what property taxes look like there, and using a mortgage calculator to see what your monthly mortgage payment will be based on your loan amount and your home's estimated purchase price.
The money for your down payment and other house-related expenses will have to come from somewhere -- your savings account isn't going to magically grow by itself. If you're eager to boost your house savings, take a look at your budget and monthly spending and figure out ways to cut back. In fact, it'll help to set a monthly savings goal and then trim enough expenses to achieve it.
Say you figure out that to meet your home-buying goal in a year, you'll need to spend $500 less each month. In that case, you may decide to sell your car to get rid of one large monthly expense. Or, you may decide to cut back on several smaller expenses that will total that same amount.
You should also pay special attention to expenses you really don't need. For example, if you pay for a streaming service you don't use, canceling it could help you stick to your savings plan.
Between your auto loan and various credit card balances, you may have a fair amount of debt in your name. If you want to save for a home, your best bet is to pay off debt as quickly as you can. The longer you have debt, the more you pay in interest -- and that money could go toward a down payment instead.
How? First, identify ways to spend less in your budget. Then, take some of the money you're saving and use it to chip away at your debt. You can also try consolidating your debt -- for example, transferring your credit card balances onto a single card with a lower interest rate (or, better yet, a credit card with a 0% interest rate). And if you're paying a lot each month for a car, you can look at refinancing your auto loan.
If your primary financial goal is to buy a house, automating your savings could be your ticket to that down payment. You can do this in a number of ways. You might arrange for a portion of each paycheck you receive to go directly from your checking account to a high-yield savings account that pays a generous amount of interest. That way, you're not tempted to spend that money, and the cash in that account can grow until you're ready to use it.
You can also set up an automatic transfer to a certificate of deposit, or CD. Just do some research to find the best CD rates before you do. With a CD, you won't be able to withdraw your money for a set number of months (or, sometimes, years). Be careful not to tie up your money for too long, especially if you expect to take a withdrawal soon for a down payment on a house. If you go with a shorter-term CD, like six months or one year, you may have an opportunity to snag a higher interest rate on your money than you might find with a savings account.
There may come a point when you can only cut back on so many expenses in your budget. If you want to get closer to your savings goal, you may need to work on boosting your income.
You have a few options here. First, you can see if it's possible to pick up extra shifts at your job, or work overtime for added pay. Next, you can look at getting a part-time job on top of your main job that you do outside of your normal work hours. Additionally, you can try to find a side gig you can do independently. Options here include:
If you're going to buy a home, you'll want to snag the most competitive mortgage you can, as that could help make your ongoing costs more affordable. Once you've saved up enough money and you're ready to make offers, shop around with several mortgage lenders to see what rates and closing costs they're offering. You can also check out this list of the best lenders for first-time home buyers as a starting point. To qualify for a mortgage, you'll need a strong credit score and a steady job and income. You'll also want to make sure you don't have too much debt at the time of your mortgage application.
Saving for a home is no easy feat, but with the right approach, you can slowly but surely sock away enough money for your down payment and realize your dream of owning a place of your own.
Here are some other questions we've answered:
If you want to uncover more about the best mortgage lenders for low rates and fees, our experts have created a shortlist of the top mortgage companies. Some of our experts have even used these lenders themselves to cut their costs.
You may be able to save for a house in a year, or it could take several years. If you're buying an inexpensive home and are able to cut your spending substantially, you can save for a home fairly quickly. Otherwise, it will take longer.
It's a good idea to put down 20% of your house's purchase price, but you may be able to put down less. The amount you'll need to save for a house will depend on what that home will cost, how much you want to put down at closing, and what your closing costs look like. You'll also need additional savings for other home expenses and emergency repairs.
It could take a year, or it could take five. The amount of time it takes to save for a house will depend on how much you're looking to spend, how much you have saved already, and how much money you're able to set aside each month.
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