How to Save Money for a House

If you’ve ever looked into buying a house, you know it’s not exactly cheap. But that doesn’t mean it’s not doable with proper saving and planning. In fact, if you know how to navigate the costs, you might be able to buy a house with little cash up-front.

If you’re considering buying a home in the near future, these five tips can help you get ready for the big purchase.

1. Research Home Prices

Before you start saving for a new home, you need to familiarize yourself  with the real estate market in your area. This means seeing what houses are available and how much they cost. When buying a home, timing can be everything, and if you know what’s going on in your local market you may be able to capitalize on deals or trends.

There are a few ways to get to know  your local market, including working with a real estate agent or by browsing online listing sites to see what’s for sale around you. If you aren’t ready to work with an agent yet, consider using these websites to check out local homes for sale.

  • Zillow is one of the most popular online real estate marketplaces. They feature listings in most parts of the country, and their site makes it easy to browse homes in your area.
  • is similar to Zillow, and their site features most of the homes listed on the Multiple Listing Service, which is used by real estate agents throughout the country.
  • Redfin is another online marketplace for homes. They use maps to offer useful information about the areas where homes are listed, such as what restaurants, schools and stores are nearby.

As you look at what houses are on the market, figure out how much home you can afford. This helps you narrow your search parameters and allows you to see all the homes in your price range. You can use Zillow’s affordability calculator to figure out exactly how much house you can afford.

2. Can You Qualify for a Government Loan?

Buying your first home is a big move, and it’s natural to look for ways to save money. One way to cut costs is by getting a government-backed loan, which can be both cheaper and easier to get approved for.

Government loans are insured by the federal government, which means the lenders who loan the money are protected from loss in case you don’t repay your debt. The most popular government-backed home loan is insured by the Federal Housing Administration (FHA) and is designed for low-to-medium income homebuyers.

There are two main advantages to getting an FHA-backed mortgage:

  • First, with an FHA loan, you can finance up to 96.5% of a home’s value. That means you only need to make a down payment of 3.5%. This low threshold enables  people with modest savings to  afford a downpayment on a new home.
  • Second, the FHA loans can be easier to get approved for, as you only need a minimum credit score of 580 to qualify. Even if your score is lower than that, you might still have a chance to qualify for  an FHA loan, if you can afford to pay a larger down payment.

3. Think About Your Down Payment

When getting a mortgage, you’ll always need to provide some cash as a down payment. This can often be the toughest part of buying a home, as not everyone has enough savings to cover this cost.

The good news is there are ways to get a home loan without having to save for years to afford the down payment. As mentioned, if you qualify for an FHA loan, you can get a mortgage for as little as 3.5% down. Other conventional loan options also offer some loans with down payments as low as 3%.

If you’re thinking about buying a home, figure out what options are available so you can begin to prepare your down payment. As noted above, if you have a credit score of at least 580, you may qualify for an FHA loan. If your credit score is better (at least 620 or above), you may be approved for a conventional mortgage with 3% down.

Remember, if you can afford it, the more money you put down in the beginning, the lower your monthly payments will be. Down payments reduce the amount of money you’re borrowing, and the less you borrow, the less interest you’ll pay, potentially saving you thousands over the life of the loan.

4. Don’t Forget the Other Costs

Though your down payment will be the biggest cost you’ll have when buying a home, there are other expenses you have to look out for. Here are a few of the biggest costs involved with buying a home:

  • Closing costs are paid when the property is officially transferred to your name. These costs include fees for your mortgage application, appraisal, home inspection, title transfer, property taxes and more. Closing costs are only paid once, but should be accounted for when planning to buy a new home. These costs can range from 2% to 5% of the purchase price, so make sure to factor that in when saving.
  • Private mortgage insurance (PMI). If you buy a home and put down less than 20%, you will be required to pay PMI, which protects the lender in case you can’t pay your mortgage and default on your loan.
  • Homeowners insurance. While having homeowners insurance isn’t required by law, most mortgage lenders will require you to purchase an insurance policy for your home. This allows  the bank to protect its investment should the property be significantly damaged. The cost of your homeowners insurance policy will vary depending on the value of your home, what state you live in, and what type of policy you get. On average, expect to pay around $1,000 to $2,000 each year for this policy.
  • Property tax is an unavoidable cost involved with owning a home. This expense is paid on a monthly or annual basis, and is calculated based on where you live and the value of your home.

While most of these costs are not due up-front, you should account for all of them when estimating the cost of owning a home. Most are paid monthly, and you’ll need to be sure you can afford the monthly payments of all these expenses.

5. Begin Planning

Once you’ve researched the real estate market, looked into your financing options and figured out if you can afford to buy a home, it’s time to start planning. While saving for your goal may take some time, if you stay the course and stick to your plan, hopefully you’ll be ready to make the move before you know it.

To kick off your planning, start documenting the following things. Write each of these down so you have a record of your plan to hold you accountable.

  • Calculate what you can afford. You need to know how much you can afford before you can truly start planning to buy your first home. Speak with a lender, or use an online mortgage affordability calculator to see how much you can afford to borrow with your income. Once you know this, you can calculate how much downpayment you need, what your monthly payments will be and how much money you’ll need for closing costs.
  • Establish a timeline. Creating a timeframe helps you know how much money you need to save each month. If you want to buy a home soon, you’ll probably need to save aggressively. If you have some time to work with, you can either save more money for a larger down payment, or you can put less toward your goal each month. Either way, establish a deadline and try to stick to it.
  • Craft a budget and begin to save. Once you know how much you’ll need to cover your down payment and other one-time costs associated with your home purchase, you can calculate what you need to save each month. Imagine you’re buying a home for $200,000, with 3.5% down. If you factor in 3% for closing costs, you’ll be looking at roughly $13,000 in upfront costs. If you want to move in the next two years, this means you’ll have to save around $550 per month to reach your goal.

Our Two Cents

If you want to buy a home, the sooner you start planning, the better off you’ll be. As long as you know what you can afford and how much you need to save, the next big step is buckling down and working toward your goal.

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