A home is more than a place to hang your hat. Owning a home is also a great investment that can set you up for greater financial stability in the future. In more than half of the country, it’s cheaper to own a house than it is to rent. Not only that, but part of every mortgage payment goes toward building equity in your home, which you can access if you’re facing hardship.
But there are many barriers to homeownership. Many people struggle with maintaining a good credit score, which is essential to getting an affordable mortgage. Prospective home buyers also struggle to save enough for a down payment, and many are not aware of down payment assistance programs. And rising mortgage rates and other economic pressures are making matters worse.
However, homeownership can be achievable if you start early and save aggressively. Here’s what you need to know about the home-buying process, so you can save enough money to purchase your dream home.
How Much Should I Save Before Getting a House?
That depends on the home’s purchase price and the type of mortgage you plan to use. Government-backed mortgages require less cash upfront, but they come with drawbacks. To avoid costs such as mortgage insurance, you’ll want to save 25% of the home price to account for the downpayment and closing costs, such as title fees and a home inspection. This will also help ensure your monthly payments stay manageable.
But if that seems out of reach for your first home, it’s possible to secure your first mortgage with as little as 3% down plus closing costs. If you don’t qualify based on your creditworthiness, you can also get an FHA loan, which is backed by the Federal Housing Administration, with as little as 3.5% down. If you are a veteran, you may be able to get a VA loan with $0 down, and if you live in certain rural areas and meet the requirements, you can get a USDA loan with $0 down as well. Just keep in mind, you’ll pay mortgage insurance premiums with USDA loans, VA Loans, and FHA loans — unless you can put 20% down, this is unavoidable.
Additionally, local grants and assistance programs are often available for low-income home buyers, and affordable housing programs can make it easier to buy a home if real estate prices in your area are out of reach. If you’re not sure what home price you should be aiming for, you can use a calculator to determine how much house you can afford based on your income.
Remember to account for moving expenses as well, and if your new home will need repairs, be sure to build the cost into your monthly budget. An experienced real estate agent can help you navigate the home-buying process, including determining your home-buying budget.
How Long Will It Take Me to Save Up for a House?
To achieve a 20% down payment on a median-priced home, the average renter will have to save 10% of their income for 7 years and 11 months, 2021 analysis shows. But the time it will take for you may vary based on your income and the cost of living and housing prices in your area. It’s best to start saving as soon as possible and contribute as much money as you can to your down payment fund.
What’s the Best Account to Save for a House?
The right financial product for you will depend on your timeline. If you’ll be purchasing a home within three years, it’s typically best to store your savings in a high-yield savings account or money market account. These accounts accrue more interest than a traditional checking account. The upside of rising interest rates is that you can get an annual percentage yield of up to 2% or more from these accounts. That means the money you save will grow, so you can reach your financial goals faster.
If it will take you three years or longer to save for a house, you may also consider investing conservatively with an investment account. But you should maintain at least 40% of your portfolio in bonds rather than the stock market unless you won’t need the money for 10 years or more. There’s greater risk involved with keeping your money in an investment account, but it’s also possible to earn greater returns.
At What Age Should You Start Saving for a House?
The later you start, the more you’ll have to save each month to achieve homeownership. It’s best to start saving for a house in your 20s, even if you can only put a little bit of cash away each month. To reach your savings goals, it’s important to keep a budget. If there isn’t money left to save after you’ve covered your other expenses, consider picking up a second job or side hustle.
How Can I Save Money for a House Fast?
The best way to save for a house fast is by cutting your living expenses while increasing your income. First, add up all your sources of income and subtract your recurring expenses, such as rent and utilities. Divide what’s left over into spending categories, and look for areas where you can cut back. Determine how much you’ll have left to save, and fund your savings account with an automatic withdrawal each month. You should also save any windfalls that come your way, along with your tax refund.
At the same time, look for ways to earn additional income. Here are a few ideas to earn more money, so you can bolster your savings accounts and money market accounts.
Work in the Gig Economy
The best side hustles allow you to work on your own schedule, so you can easily fit it in outside your full-time job. There are options for a variety of interests, and you typically don’t need any education or training. For example, consider pet sitting, food delivery, ridesharing, handyman work, or mystery shopping.
Start a Freelance Business
If you have valuable skills you can provide on a freelance basis, consider starting your own website or advertising your services on Fiverr. Set a competitive rate and collect testimonials so you can get more clients.
Accept Gift Money
If your family members plan to leave you an inheritance, talk to them about passing some of their wealth to you now through nontaxable gift money. This strategy has advantages for the donor and the recipient.
Turn Your Free Time into Extra Cash
If you don’t have time for a second job, you can still earn extra money in your free time with Swagbucks. You’ll earn points for taking surveys, watching videos, playing games, surfing the web, and more. You can easily cash out when you have at least $3 in SB (points), and that extra income can go straight to your house fund.
Earn Cash Back for Spending Money
Take advantage of opportunities to earn cash from the shopping you do anyway. Use Upromise Shopping to earn cash back and save with coupon codes, and use a cash-back credit card when you make your purchases as well.
How Much Do I Need to Save for a $200K House?
It depends on the type of mortgage you’re getting. To achieve the lowest monthly payment and avoid private mortgage insurance, FHA mortgage insurance premiums, or the VA funding fee, you should save 20% of the home’s purchase price, plus 5% for closing costs. Here’s how much you should save with each type of loan:
- VA or USDA loan: $10,000
- Conventional 97 loan: $16,000
- FHA loan: $17,000
- Conventional loan with 10% down: $30,000
- Conventional loan with 20% down: $50,000
How Can I Save Money for a House in 6 Months?
To save for a median-priced home in the United States, you’d need to stash away at least $22,000 for closing costs, even if you qualified for a $0 down payment. That would require saving more than 60% of your earnings for six months if you’re a median-income earner. But if you’re earning a higher income and buying in an area with lower prices, you might stand a chance. The best strategy is to trim your budget and add another source of income to quickly pad your bank account.
How Can I Save for a House in My 20s?
Saving for a house in your 20s can be tough since you haven’t yet reached your peak earning years. But for all age groups, it’s important to save at least 20% of your income, especially if you plan to buy a house. There are plenty of gig jobs available for people in their 20s to earn extra income, and smart budgeting can help you reach your savings goal faster as well.
Final Thoughts on How to Save Money for a House
The more you can save, the better prepared you’ll be when the right home comes along. It’s best to aim for a 20% down payment from the start, so you can keep your mortgage payments low and avoid fees. But if rising rents have got you down and your savings account isn’t stocked yet, know that there are loan options and down payment assistance programs that can help.
Make sure to pay your bills on time and avoid excessive debt so you can have access to the most favorable rates and terms. In your free time, use the Swagbucks app to rack up points and save more money. And when unexpected cash comes your way, whether it’s a lottery ticket or a raise, resist the urge to spend money. With some patience and a strict budget, you’ll be able to afford your home purchase in no time.
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