Saving money for a house can be one of the biggest challenges when it comes to financial planning. You already have so many financial obligations and commitments - figuring out how a down payment and mortgage payment fits in can be daunting. One of the biggest questions for most people is how much they should spend on a house. The keyword here is should, because most financial institutions are willing to loan you more than you can comfortably afford to spend. Once you determine a baseline for what you can afford as a monthly payment and what your overall budget is, creating a plan and saving money to buy a house can be manageable.
How to save money for a house
The biggest chunk of a house purchase that you’ll need to start saving for is your down payment. Most likely you’re paying rent (or even a mortgage) so you have some chunk of money earmarked for your monthly housing payment. The more money you’re able to put down when you purchase a house, the lower your mortgage payment will be. Here are some tips on how to budget for a house purchase:
- Set a goal for how much money you need to save
Often the first question you will be asking yourself is how much should I spend on a house? This is a personal question depending on your income, current debt and other financial obligations, and what sort of home you’re looking to purchase. As long as you know where you want to purchase your home, you can get an idea of how much it will cost and what you’ll need to budget. Here’s a quick calculator you can use to see how much you can afford to spend on a house.
- Cut back on non-essential expenses
This doesn’t mean you have to give up all spending. But the easiest way to save money is to spend less. There are so many ways you can spend less, from meal planning and cooking at home to limiting the number of subscription services you have (if you haven’t done an audit recently, do it! You’re probably paying for services you don’t even remember you have, or they raised the rates without you even realizing). You can also save money on necessary expenses by finding cheaper car insurance, switching cell phone providers or being conscious about energy usage. If you use a credit card for essentials like groceries and gas, make sure you have a card that maximizes your cash back rewards. It may seem like small changes won’t add up, but employing just a few of these can really help you build your savings.
- Increase your income
Finding ways to earn extra money is an easy way to help boost your savings. Whether that be a side hustle, freelance work where you can take advantage of your skills, or using your existing assets to earn more (think Uber), there are many creative ways you can make a little extra if you’re willing to put in the effort. There are many options, so find something that works with your schedule.
- Automate a savings deposit
Many banks allow you to automatically allocate a certain amount of money per month from your checking account to your savings account. If you never see the money in your checking account, you won’t miss it! If you don’t have a high-yield savings account where you earn a higher percentage of interest on your money, it may make sense to open one now to make your savings work harder for you. Check out these options. Aim to save at least 20-30% per month. You can also automate credit card and bill payments so that you aren’t charged any late fees - those can add up.
- Declutter your space
One person’s trash is another person’s treasure. Survey your items, identify things you no longer need and sell them online. Furniture, appliances, art, clothes and jewelry you don’t wear, electronics (seriously, are you ever going to use that old phone?). Online marketplaces are so popular - you’ll have no problem selling your gently used items to make some cash. Just remember to put the money you make in savings - it’s not for a shopping spree!
Bonus Tip: Look into grant & loan eligibility
There are many options out there to help you purchase a home, especially if you’re a first-time home buyer. Depending on your situation, you may qualify for down payment assistance or special loan options. Check out these government programs and see if you're eligible for assistance.