Saving for a House

How Much Money Do You Need to Buy a House?

Before we dive into the details and strategies to help you save for buying a house, you need to know how much money you need to save for a down payment.

Since there are many ways to finance a home, we’ll cover the two main options for your house down payment.

Down Payment on a Conventional Loan

For most conventional home loans, it is wise to save up a 20% down payment on the home. The reason for this is that most lenders require you to pay Private Mortgage Insurance (PMI) if you do not bring a 20% down payment. This can be as much as 2% of your loan balance for the year, which is a significant monthly cost.

To save up 20% for your home, you need to take the total home cost and divide by 5.

Example of a 20% down payment on a home:

• Home cost → $300,000
• 20% Down payment → $300,000 ÷ 5 = $60,000

As you can see, a 20% down payment can seem like a lot. Especially if this is your first home purchase.

Which is why many first-time homebuyers instead opt for down payment assistance loans from the Federal Housing Administration (FHA).

Federal Housing Administration (FHA) Loans

FHA loans are federally-backed mortgages designed to help those with lower incomes and an average credit score to qualify for a mortgage. You can put as little at 3.5% down on your home purchase depending on your credit score and other qualifying factors.

Note: There is mortgage insurance (called MIP) on this type of loan, but it does allow you to save much less to purchase a home. Always run the numbers to see what works best for your financial situation.

To save up 3.5% for your home, you need to take the total home cost and multiply by 0.035.

Example of a 3.5% down payment on a home:

• Home cost → $300,000
• 3.5% Down payment → $300,000 x 0.035 = $10,500

As you can see, a 3.5% down payment is more than 5x less than putting 20% down and may seem more attainable.

There are other loan options, including USDA and VA Loans that have specific qualifications, but may allow you to put as little as 0% down. As always, do your research to see if you may qualify.

9 Simple Ways To Save For A Home Fast

Once you figure out exactly how much you need to save for a home down payment, follow these simple strategies to boost your savings rate and buy your home faster!

1. Get on a Budget (Yes, Really)

The best way to save money is to plan for it! And there is no better way to start saving money than to get on a budget that allows you to maximize your savings.

The best way to start is by going through your current spending. Review your past few months of bank and credit card statements to see exactly where your money has gone.

Then create a budget based on your spending and see how much you can save each month. If you want to save more, you can start looking at areas of excess spending (we’re looking at you, Amazon) and see if you can cut them back a bit.

Remember, cutting expenses is not forever and you can still have some fun on a budget. But remember to focus on your BIG goal of buying a house and temporarily cut back on extras until you get there.

2. Live on the New Mortgage Payment

When buying a home, it’s always a good idea to start living on your new mortgage payment BEFORE you buy the home. This lets you know how life will feel (financially) when you do buy the house. But the magic is that you can then save the extra dollars into your down payment fund.

Example:

Let’s say you are currently paying $1,500 per month in rent. You want to put 3.5% down on a $300,000 home. Your total new mortgage payment would be about $1,900 per month.

Set up your budget to live with a $1,900 payment instead of $1,500, and save the extra $400 into your down payment savings account. This will help you save toward your home AND help you get used to the new payment at the same time!

3. Bank Your Next Raise

When saving for a house, any and every extra dollar moves you closer to the goal. If you want to get there quicker, consider banking your next raise.

Whether you go ask for a raise right now, or wait until your annual review, if you get a raise, put all the extra funds into your down payment savings account.

Example: 

Let’s say you make $70,000 per year. You get a 4% raise this year ($2,800).

After taxes, your take-home pay goes up about $175 per month. Save that $175 per month toward your down payment.

4. Make It a “Stay-Cation” Year

Vacations are tons of fun, but can be awfully expensive. Why not skip the trip this year and enjoy a stay-cation instead?

There are tons of free and budget-friendly things to do in your own home town (just Google it), and you can enjoy exploring your local city while saving thousands of dollars toward your new home.

Americans spend almost $2,000 on summer vacation per year, even more for families. If you plan a fun stay-cation for 2 years that’s $4,000 more toward your house down payment.

Yes, travel is fun, but pausing for a few years to own a home is absolutely worth it.

5. Cut Out ALL Extra Spending (For a Short Time)

If you are really motivated to save up for a house fast, then you might consider challenging yourself to cut out all the extras.

This is the fastest way to boost your savings, but be careful, it could leave you feeling burnt out if you are too aggressive with your budget.

The easiest way to do this is to only pay for your necessities, and nothing else.

The only things you need to budget for are food, housing, utilities, and transportation. Everything else gets cut out. Many people refer to this as a no-spend challenge.

This is a sure-fire way to save hundreds (or thousands) per month and start stacking cash fast. But don’t do this for too long as you might end up throwing your budget out the window and giving up completely.

Consider this a challenge to yourself to get into your house faster and make sure to give yourself a little “fun money” each week so you don’t feel too deprived.

6. Get a Side Hustle to Save Even More

If living on a bare-bones budget isn’t too appealing, then consider getting a side hustle to help boost your income and your savings.

Here are a few ideas you can check out to get started with bringing in some extra money:

Delivery Driver. Everyone is getting groceries and take-out delivered these days, why not be the one dropping it off? You can earn money through places like Postmates, Uber Eats or Instacart on your own time and simply get paid to drop off people’s stuff.

Hang with Pets. If you’re a pet person, considering using a service like Rover to watch other people’s animals and get paid for it. Play fetch with Fido and collect a few dollars to save toward your home.

Get Crafty. Like making crafts? Consider setting up shop online and sharing your gifts with the world. Websites like Shopify and Etsy make it easy to set up shop and start selling your art. 

No matter what you choose to do on the side, extra income will get you into your dream house much quicker!

7. Pay off Your Debt

“Wait, what? How is paying off my debt getting me into a house quicker?”

Although this may seem backwards, paying off your debt can help you get into a house and save more money in the long run. Lenders consider your Debt-to-Income ratio (DTI) when qualifying your for a loan, and the lower your debt, the better your terms can be.

Paying off a few high-interest credit cards or loans can go a long way toward getting you into a home and saving you money on the mortgage as well.

8. Sell Your Stuff

Did you know most of us are sitting on hundreds (or even thousands) of dollars and we don’t even realize it?

Yes, most Americans have unused items they can sell right now, quickly netting them hundreds of dollars (and decluttering their life at the same time)!

Garage sales are out and Facebook Marketplace is in. It’s quick and easy to snap a few pics of your items, put in descriptions and price and list them online.

Need some help finding what to sell? Simply open your garage and identify things you haven’t touched in a year. If you won’t need it anytime soon and it’s worth $5 or more, list it online and collect some cash for your new home!

9. Automate Your Savings

One of the best ways to save for a house is to simply make it automatic. When every paycheck comes in, have a set amount transfer to your savings account.

Example:

You get paid every other Friday. On the following Monday, schedule an automatic transfer of $100 to your house down payment account.

Set this up as a recurring transfer every 2 weeks and you can start stacking your down payment quickly.

Saving for a House is Hard. A Financial Coach Can Help.

While this guide offers several useful tips to help you save for a house, you don’t have to go it alone. By hiring a financial coach, you’ll benefit from their knowledge and experience to develop a personalized savings plan based on your individual circumstances. You’ll gain an accountability partner by your side and find yourself unlocking the door to your new house before you know it.

This guide features a diverse mix of financial coaches on Wealthtender who are ready to help get you into your new house. Simply scroll down to review the list or visit the Wealthtender Financial Coach Directory to search based on what’s most important to you. You’ll find financial coaches with a broad range of education, experience and specializations who are ready to help you enjoy life more with less money stress.

We encourage you to interview multiple financial coaches to ensure both you and the coach you decide to hire are a good fit for each other. Most coaches offer an initial introductory call for this purpose, and may even require it before getting started.

Saving For A House FAQ

Here are the answers to a few common questions about saving for a house.

Start Saving Today

No matter how you choose to save for a home, don’t wait. Rents usually aren’t going down and you aren’t getting any younger!

If you follow these tips you can quickly get yourself into a house and start enjoying your new found freedom!

Jacob Wade

About the author:

Jacob Wade is the budgeting expert who started iHeartBudgets, a place where Millennials and young families come to learn EXACTLY how to build a budget that WORKS.

Jacob quit his job in 2018, sold his house and 95% of everything they owned to take off on an adventure of a lifetime and RV around the USA.

He is now on mission to spread the message of Financial Freedom around the country, and help others build a “Freedom Plan” of their own!

Also, he has a thing for Doritos…