Hommati Logo

Download the App

How to Save Money to Buy a House

Go back
How to Save Money to Buy a House

Ready to buy the house of your dreams, but don't quite have the funding? Here's a guide on how to sa

 

A National Association of Realtors® survey revealed most renters dream of homeownership. Yet, over half of them say they can't afford it.

If you’re one of them it’s time to get serious about saving money. Rising home prices make it hard to save enough for the down payment. It feels overwhelming when you factor in rent increases and daily expenses.

But don’t worry. We have ideas to get you into saving-mode. There are ways to save even when your budget feels stretched.

Ready to stop paying your landlord’s mortgage and buy your own home? Keep reading to learn how to save money to buy a house. 

Figure Out How Much You Need for a Down Payment

The down payment on a house is the money you pay upfront. It’s going towards owning the home.

A mortgage loan covers the remaining balance. The loan is repaid monthly and includes interest charges.

For a conventional loan, you need to pay 20% down. For a home that costs $200,000, your down payment would be $40,000. Whoa!

But a 20% down payment isn’t always required. Many banks offer mortgage loans with lower down payments.

You could score a loan with a 3% down payment. That reduces the down payment to $6,000 for a $200,000 house.

FHA loans offer down payments starting at 3.5% Some USDA and VA loans don’t have any down payment.

Shop around for the best deal. Be aware, if you don’t make a 20% down payment you must buy private mortgage insurance (PMI). 

PMI is 0.3% to 1.2% of your mortgage loan amount. It may be a good trade-off if it lets you buy a home faster.

It also keeps money in your pocket for repairs, furnishings, and emergencies.

Talk to a mortgage loan officer to get details on:

  • Types of Loans
  • Pre-approval Amount
  • Required Down Payment

You need to save for more than the mortgage loan. Plan for closing costs, home insurance, the realtor’s commission, and property taxes.

Once you have detailed figures you can set a goal and plan your savings strategy. Calculate how much you need to save each month.

Try an online mortgage calculator if you need help crunching numbers. 

Once you know how much you need, it's time to start saving. Keep reading for tips.

Open a Special Savings Account

Consider putting your savings in an account separate from your everyday expenses. A future home savings account makes it harder to reach and spend.

If possible, put the money in an account that earns interest. Consider certificates of deposit for a higher interest yield than a savings account.

Put it somewhere safe and easy to access. You don’t want to miss out on a house because you couldn’t get at your money.

Set a Monthly Spending Limit

Now, you know how much you need to save each month. Put your savings goal into the budget like an expense. Adjust your spending to make it fit.

Set a spending limit and track your progress. Pay attention so you don’t overspend and short change your savings.

Be realistic. Give yourself a couple of months to master the plan. When you’re tempted to spend remind yourself owning a home is worth the sacrifice.

Lower Your Debt

It’s hard to save for your future home if you have lots of debt. A heavy debt load also makes it difficult to qualify for a mortgage loan.

If you have debt, focus on reducing it. If possible, refinance high-interest loans to lower your payments.

Pay off as much as you can on high-interest credit cards. Consider transferring the balance to a card with a lower interest rate.

Reduce Your Monthly Bills

Besides rent, the biggest bills are food, electric, water, car insurance, and cable. Take a hard look at what you can do to save on those bills.

Reduce your cable bill by cutting back on services. Take it a step further by eliminating everything but internet service.

Turn your lights off and your thermostats up, or down, when you aren’t home. Conserve water while brushing your teeth or washing dishes.

Shop around for better deals on car insurance and cell phone service. Every dollar counts. Try an app like TrueBill to negotiate bills for you. 

TrueBill tracks all your automated transactions. Use it to cancel forgotten gym memberships and services set up as recurring charges.

Switch Your Cell Phone Provider

Some people stay with an expensive phone plan because they worry about reliability. Yet, today’s technology offers quality phone service for less money

Research how much data you use each month. Decide what you can and can't live without. Then, compare prices between smaller carriers that offer the service you want. 

Get Rid of High-Interest Rate Credit Cards

It’s hard to reduce debt when the average credit card interest rate ranges from 13% to 23%. You spend your money paying down the interest instead of the principal.

Find a low-interest personal loan to refinance or pay off your credit card. Lose the high-interest rate and pay down the personal loan instead.

A lower interest rate can save you thousands of dollars over several years.

Turn Grocery Receipts into Free Gift Cards

Do you toss your grocery receipts in the trash? If so, you’re throwing away gift cards and cash.

Check out free apps that reward you for scanning your grocery receipts

Ibotta is the most popular grocery app. Scan in your receipts and receive rewards for buying specific brands.

The app gives cash back on over 300 grocery brands. It works at local grocery stores and national chains like Target and Walgreens.

Apps that scan receipts offer an easy way to make money on stuff you buy every day. All it takes is a few minutes to scan the receipt.

The apps are free to use. Some offer cash and others redeem points for gift cards.

Check for programs at your local grocery. National brands offer rebates and gift cards when you buy specific products. Scan your receipt and get a gift card for your local store.

Automate Your Savings

Need help doing the right savings thing? Try an automatic savings app

Automated savings lets you save without thinking about it.

Adjust your payroll settings so your paycheck deposits a set amount each pay period. Or, schedule an automatic payment in your bank account. 

Some savings apps match your contributions. Other apps round up your purchases to the nearest dollar and deposit the difference.

Automated savings hold you accountable while keeping the process easy. If you never see the money you won’t spend it.

Get Yourself a Side Hustle

Take advantage of the gig economy to make some extra money. Shop for groceries, deliver take out, or drive for a ride share service.

Like animals? Work as a part-time dog walker or pet sitter. If you have extra stuff list it for sale online. It’s easy to make money on everything from clothing to gadgets.

Technology and apps make it easy to earn extra money for your down payment. Most side hustles don’t need special qualifications, so you can start right away.

Don't risk spending your extra money. Deposit it in your hands-off down payment account right away.

Request Gift Money

When your birthday or a gift-giving holiday comes around ask your family for gift money. Explain that you’ll apply the gift towards your down payment.

Not everyone will like the idea, but some relatives are sure to help you reach your goal of owning your first home.

Put a Temporary Hold on Retirement Savings

This idea works best if you aren’t close to retirement age. If you contribute to a 401(k) or IRA plan, consider using the money for your down payment savings.

Only use this tactic on a short-term basis to boost your savings. After you have your down payment return contributions to your retirement accounts.

Get Freebies at the Public Library

Don't buy something if you can borrow it from the library. Did you know you can get tools, musical instruments, board games, and more at your public library?

Many public libraries have free passes to local museums, zoos, and state parks. Some passes are good for the whole family. 

Unexpected freebies at the library include telescopes, video games, and tools. Need a hammer, rake or drill? Borrow it from the library instead of buying it.

That’s also good advice after you buy your home.

Now You Know How to Save Money to Buy a House

There’s no limit on how to save money to buy a house. Get started with the ideas listed here, then come up with your strategies. 

Saving money isn’t a chore when it leads to homeownership. Be patient with the process. It’s okay to make mistakes on occasion. Stick with the plan and you’ll have a down payment ready soon.

Contact a local realtor when you're ready to find your dream home.