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The best tips for saving for a house that you need to know.
If you have a home-buying plan in the next five years, or even if you do plan to buy a house sooner than that, you still might want to start thinking about how to start saving money for a downpayment on a house.
However, saving money for a house especially when you are on a tight budget can be a really daunting task.
But it doesn’t have to be that way, today I will share with you best tips on how to save to buy a house while renting so that you’ll have your downpayment ready when you’re ready to buy.
How To Save To Buy A House
You do not have to be wealthy to start thinking of buying a home, you just have to start somewhere. Sure, it’s not easy but it is possible, you just have to set yourself on the right track for buying a home. Here’s how:
SET YOUR GOAL
In everything you do, goal setting is important and buying your first house is no different. For many of us, a home is the single biggest purchase we’ll make in our lives and probably the one purchase we’ll have the longest.
Therefore, having a clear savings goal that defines what you want in a home is very important.
THINGS TO CONSIDER WHEN SETTING YOUR GOALS
Here are things to consider when you are ready to meet with your real estate agent.
JOB STATUS. Are you or your husband planning to keep your current job for a few years or keep it long term? Job stability plays a big role when planning to buy a home. After all, it’s what pays the bill.
TYPE OF HOME. Do you want a condo or a single-family home? Writing down the pros and cons of each type will help you in your decision.
LOCATION. Decide on what kind of neighborhood you want. Consider the commute to and from work, quality of schools, crime rates, accessibility to transportation, and even the distance to groceries, restaurants, or malls.
FEATURES. Decide on all the features that you want your house to have and write them down. Rank the features based on what matters most to you and your husband. Keep the list as this will come in handy when you start evaluating home.
DECIDE ON YOUR BUDGET
Now that you already know the kind of house you want and decided on the best location, it’s time to find out how much you can afford.
Do not rely on what the bank tells you, find out what you can comfortably afford. Additionally, you do not want your life’s biggest purchase to wreak havoc in your finances.
Add up the total home costs, including monthly mortgage payments, property tax, homeowner’s insurance, and if the home is a part of a homeowner’s association, don’t forget to include homeowner’s association fees.
Financial gurus like Dave Ramsey recommends that your monthly home cost should not be more than 25% of your take-home pay.
After you’ve decided on how much you can afford, plan on saving 20% for a downpayment if you can to avoid the added monthly cost of private mortgage insurance, and also get a better rate.
DECIDE ON YOUR TIME FRAME
The next step is to determine your time frame. If you and your spouse plan to buy a house in five years, then you’ll have to figure out how much money you should set aside every month.
For example, if your 20% down payment is $50,000, you will have to save $834 a month ($50,000 / 60 mos) for five years.
Best Ways To Save Money For A House
CREATE A BUDGET
Now that you know how much you’ll need to save, it’s time to re-evaluate your budget or create one, if you haven’t yet.
A monthly budget will give you an overview of how much money coming in and how much money going out.
The easiest way to establish a budget is to use a monthly budget template — which shows all your net income. Then subtract all costs like rent, debt payments, utilities, student loans, and other expenses from your net income.
If budgeting confuses you, you might want to check out this post on how to make a monthly budget.
After creating your budget, here comes the fun part — how much money is left? The goal here is to increase the money left every month so that you can put it towards your down payment.
So, where can you cut costs?
MOVE IN A CHEAPER RENTAL
Rent is probably the most expensive monthly expense that you have in your monthly budget. Re-evaluate the space that you currently have. If you and your husband do not really need a lot of space, consider downsizing and move into a cheaper rental.
If moving is not an option, consider getting a roommate or renting out your extra space, or even negotiate with your landlord. Extending the length of your lease can enhance your negotiating power.
REDUCE YOUR EXPENSES
Let’s be honest, not all of our monthly expenses are essential, therefore there is always a way to reduce those expenses, probably even eliminate them for good.
When you pay more attention to your spending, you’ll find that you really don’t need that expensive wireless plan, the 1000+ cable channels, or that expensive gym membership.
Similarly, you do not need to dine out every week with friends. Have a potluck party instead.
Everything is negotiable, including your bills. Have these guys negotiate to lower your bills.
PAY OFF YOUR DEBTS
If you have other debts like credit cards, car loans, personal loans, or student loans, consider paying them off first before saving for a house.
Debts could easily limit the amount of money you can put towards your down payment. Once your debts are paid off, you’ll be able to free up hundreds or even thousands of dollars that you can put towards your down payment.
BUILD YOUR CREDIT SCORE
Your credit score plays an important role in your ability to borrow from mortgage lenders and secure a good interest rate.
You might even be able to get away with a low down payment if you have a strong credit score.
Your credit score is based on your credit report — your total debt, any missed or late bill payments, the number of credit accounts you have and more.
If you’re struggling to build your credit, check out this article on how to rebuild your credit.
SET UP A SINKING FUND
A sinking fund is a saving designed for a specific purpose, in this case — your down payment. With a sinking fund, you’ll know what you are saving for, how much money you’ll put in every month, and when you’ll need to use it.
When you have a downpayment sinking fund, you’ll be able to track how much you have and how much more you need to save.
Need to set up more sinking funds? Check out these sinking fund examples that every couple should have.
SAVE YOUR WINDFALLS
Don’t you just love those periodic windfalls — think of bonuses, tax refunds, wedding, and birthday gifts.
Although it’s tempting to splurge a bit, you can actually make the process of saving money for a downpayment easier or even shorten the process by banking on all your windfalls.
HALT YOUR RETIREMENT SAVING
Don’t worry, this is only temporary. The more money you can put towards your down payment, the sooner you can resume your retirement savings.
However, if your company matches your 401(k) plan contribution, don’t stop your retirement savings, instead, reduce your contribution up to what the company matches.
If you fail to do it that way, you’ll just be leaving money on the table.
LET YOUR SAVINGS GROW
There is no better place for your down payment money than in a high-yield savings account. Put your money to work while you’re still saving and watch it grow.
High-yield savings accounts are bank accounts that earn you a higher interest rate for deposits than a traditional savings account.
A higher interest rate means a better return on your money. We use CITbank for our high-yield savings account. Check out their savings rate here.
EARN MORE MONEY
Earning more money means more savings. Therefore, turbocharge your income by working overtime or picking up a side hustle.
However, there are endless ways to make extra money but not all of them are viable and not all of them can be worth your time, so tread carefully.
If you are looking to use what you already have — like your car or phone, check out these delivery gigs that you can do to make extra cash.
If you want more side hustle ideas, check out the 32 legitimate ways to make extra money.
SET YOUR SAVINGS ON AUTOPILOT
I’m sure that you’ve heard it before that the key to any sound financial strategy is automation unless you’re a saver by nature, of which most of us are not.
You should be able to set up an automatic transfer from your checking account to your high-yield savings account. Once it set up, you are good to go.
ASK FOR FAMILY ASSISTANCE
Probably not the best tips but if you have a family who is willing to lend a hand, why not? It’s not like you are not going to pay them back.
My husband’s parents helped us in our first home’s down payment and we were able to pay them back sooner than we thought. Because we didn’t have to pay private mortgage insurance and we got a better rate, we were able to save money and pay them back sooner.
Final Thoughts On How To Save To Buy A House
Saving for a house shouldn’t be so hard if you follow all the tips mentioned above. Yes, it can be a long process but the key here is dedication. Keep your eyes on the prize and you’ll most likely get it.
For sure, it will involve sacrifices here and there. After all, it will be the biggest expense of your life. But that’s just the tip of the iceberg, once you’re a homeowner, the expenses do not stop.
Now it’s your turn, how are you saving for a house?
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