How to Save Money for Your Dream Home
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Although more and more millennials are taking up a wanderlust lifestyle, I think most of us still want to be able to own a house (at least someday). But when we are loaded down with student loan debt and battling outrageous costs of living, we are often left wondering how to save money for a house.
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How to Save Money for a House
So you want to buy your first home. This is an exciting time in your life! But it can easily become stressful if you don’t have a solid plan in place for saving money.
Luckily, it doesn’t have to be, and the fact that you are reading this in the first place makes me confident you have what it takes to be a homeowner! I’ve compiled a list of the top ways to save money for your first home!
In fact, these are the strategies I am currently using myself while I save right alongside you!
Automate Your Down Payment Savings
It seems like there are always expenses or other things popping up that try to derail even the best of budgets. This is one reason it is important to pay yourself (or in this case, pay your future house) first.
Set up an automatic transfer from your primary bank account to your savings account to go through every month. Then, plan your budget around the amount of money you have left and pretend like that house savings money doesn’t even exist.
Cut Costs to Increase Your Savings Rate
If you’re thinking to yourself okay, automate my savings with what money? I have nothing to save! Then, it is time to start cutting costs.
Take a good hard look at your budget to determine areas where you can cut back. I know how hard it can be to say “no” to something you really want, but if saving money for a house is your priority, then remind yourself of that every time you have to make a tough choice.
Here are some ways to consider cutting costs so you can save more money.
Rent a smaller apartment or house
The place you are living now isn’t
Stop buying stuff you don’t need
Maybe that new pair of shoes really is cute, or you’d love to have a new bag for all your adventures. Are those things you can forgo for right now?
If not, buy them on sale or used to save extra money. Thrift stores in the nice suburbs can be great places to get awesome clothes, shoes, and more for crazy discounts. I have even bought things that were BRAND new, with the tags on and everything for like $5.
If you have already accumulated more stuff than you need and you don’t even use it, another way to increase your savings is by having an online yard sale. Joel and I did this before moving into the RV and we made just over $2,000 by my most recent tally!
Eliminate services you don’t need.
Cut the cord on cable TV, eating out, etc. Find free or cheap activities to do instead! Get Netflix and share with a few friends or family members. If you absolutely can’t live without TV, try Sling to save a bunch of money while continuing to watch all your favorite shows.
Cancel the gym membership you’re always too busy to use and start a home workout program instead.
You get the idea. If you can replace it with something free or cheap, definitely go that route.
One great way to find more money in your budget is by using Trim. Trim is a free program that helps you identify areas of your budget where you are overspending (or just throwing money away on things you don’t even use anymore but forgot to cancel).
If you’re having trouble finding ways to cut back, you’ll definitely want to check it out.
Try having a “no spend” week every so often
A “no spend” challenge is what it sounds like. A challenge to yourself not to spend money for a certain amount of time. It is something worth considering, but don’t go crazy and totally deprive yourself or your resolve is likely to fade quickly.
Start meal planning to save tons of money on groceries and make your life simpler!
Joel and I just started meal planning, and I honestly don’t know how I lived before. It takes the stress away from having to figure out what to eat after a long day of work. I just check my plan and am ready to go.
Plus it makes it much easier to save money while still eating healthy. Less money, less unhealthy food, less stress? Sign me up for that!
Decreasing impulse buys
Take time to sit on a purchase (at least 24 hours is good, a week is even better) before buying something. Try to get your spouse on board if they are the spender.
Often times a day or a week will pass and you won’t even remember what it was you were thinking of buying. This is a surefire way to save more money for your first home!
Check out this post dedicated to saving money for even more ways to save money easily!
While cutting costs generally isn’t very much fun, just remind yourself why you are doing this in the first place. Envision your life as you dream it will be to keep yourself motivated along the journey!
Make More Money
Increasing your income is another great way to be able to save more money for a house! I know, I know you are crazy busy and finding time for a side hustle sounds exhausting. But you’ve got this.
The short term sacrifice to get yourself ahead financially will be so worth it in the end!
There are lots of ways to make extra money. Here are some of my favorites!
Babysitting
Babysitting was one of my go-to side-gigs throughout high school, college, and grad school. But even if you are out of school, there is no reason you can’t still pick up some extra work babysitting.
Babysitting is great because it is flexible (you can always so no, I’m not available that night). That way if you know you will be swamped at work, you can just not take on the extra side hustle work that week.
Another reason I love babysitting is that it is an amazing way to make money. Towards the end of my babysitting career, I was making around 20-25 dollars an hour to hang out with some awesome little friends!
Proof Reading
Another awesome side hustle that you can do on your own schedule is proofreading. If you love to read and write, this would be an amazing way to make some extra money to save for a house down payment.
You could earn anywhere from $100-$300 or more per job and sometimes even more. In fact, there are even people who turn to proofread into their full-time jobs.
To decide whether or not this could be a good side hustle for you, I would recommend checking out this FREE proofreading workshop. The creator, who proofreads full time, gives you all the information you need to decide if you want to move forward with proofreading.
Sell things you don’t need
Although there are people who continually flip flea market or eBay items for a profit, this way to make extra money for your down payment generally won’t be a long term thing.
However, that is not to say you can’t add a decent chunk of change to your savings by selling things you no longer want or need.
We have been downsizing in preparation for full-time RV living and have made $2000 just from selling stuff we don’t even use with an online yard sale!
With the potential for more cash and less clutter, this is an awesome way to save money for a house.
Teach English to Kids in China
Another neat way to make extra money is by teaching English. This has become more popular in recent years and offers a great way to make more money.
Since you will be working with people halfway across the globe, you’ll likely have to work late at night or early in the morning.
If that doesn’t sound doable, this may not be the way to go. But, teaching with a program like VIPKid can be an excellent way to add to your savings even with a full-time job.
Freelance Writing
One more quick idea for making extra money to add to your house fund is by freelancing. There are tons of websites that need writers, and you can be the one to fill that need.
You can also find work by joining freelancing facebook groups. In fact, that tends to be one of the best places to find writing gigs. If you love writing, freelancing is an amazing opportunity for you.
With flexibility on when you work, this is a great option if you have a full-time job. If you think flexibility, creativity, and the possibility of making up an extra $5,000 a month sounds AMAZING but you have NO idea where to start, you’ll want to check out this course.
Michael teaches you the exact steps you need to take to build a freelance side hustle that could easily replace your full-time job. Even if that isn’t the goal, you could add a consistent stream of income to your monthly budget.
This isn’t a get rich quick scheme, so you’ll have to put in the work, but if you aren’t satisfied with the course you can get your money back within the first 30 days. On the other hand, you could multiply your original investment by 25 every single month!
Where Should I Keep my Money While Saving for a House
You have money for your house now! WOOHOO!
As you start building up your savings, it is smart to ask this question. Where should you keep all that money anyway? It is going to be a lot of money by the time you have it all saved up, so you want to maximize interest while minimizing risk.
Since you don’t want to lose your down payment money, you are likely going to want to steer clear of the stock market. Best investing advice says never invest money you can’t afford to lose.
And while technically you could live without your down payment money, losing it if the stock market went down would just really suck.
So I should keep it in the bank? Well, maybe, but not in just any savings account.
I am pretty sure my old savings account gave me like 0.0000000001 percent interest. Maybe this is a slight exaggeration, but you get the idea. Traditional savings accounts can’t even keep up with inflation.
High-Yield Savings Accounts
What you are going to want to find for your down payment money is a high-yield savings account (or checking account, although these are less common).
There are a variety of online options for high yield savings accounts.
I have heard good things about Ally Bank. American Express also has a pretty decent interest rate on their high-yield account. Once we pay off the RV (sigh to being back in debt), I plan to open up an account with one of these places for my own savings.
Another awesome way to find high-yield interest accounts is by checking with your local credit union.
Our credit union has a 4% interest checking account! It is only that interest rate for up to $15,000 and you have to meet some monthly requirements, but there is no way you would find that high of a rate at most other places.
So check in with credit unions near you to see if you can also snag an amazing deal and grow your savings even more by getting an amazing interest rate.
CDs
Lastly, you can consider putting your money into a CD (certificate of deposit). A CD guarantees you a particular interest rate on your money.
This rate is usually higher than you could get with a typical savings account or even some high yield savings accounts.
Well, that sounds great, right? Unfortunately, there is a bit of a catch.
You generally CANNOT withdraw this money before the specified term is up without facing a significant penalty. So if you set up a CD for 3 years, you have to wait 3 years before accessing that money.
In addition, most CDs don’t allow you to contribute additional money to the account as you earn it. Whatever you put in at the start is what is in there and what you are earning interest on.
How Much House Can I Afford?
Before you decide on which strategies above you plan to use to save money for your first home, you need to know how much house you can realistically afford. And I’m not just talking about the mortgage payment!
There are tons of additional costs associated with homeownership that you need to remember if you don’t want to end up house poor.
You have to consider your utility bills. Just remember, a bigger house will mean higher utility expenses for heating and cooling.
Another factor to keep in mind is repair costs. If you are buying an older house (which is how a lot of young people start out), things WILL break. And if you don’t account for those expenses, they will probably be even more likely to break. Funny (or not funny) how that happens…
There are also property taxes and homeowners insurance that need to be accounted for when deciding what you can honestly afford.
You don’t want to spend every last cent in your bank account to get a bigger house and then be stuck going even deeper into debt at the first sign of trouble.
Buying a house is supposed to be fulfilling and exciting, but if it just makes you stressed out financially, then why are you doing that to yourself in the first place?
So How Much House Can I REALLY Afford?
I have seen some “how much house can I afford” calculators that say you can spend up to 36% of your yearly income on your mortgage. So if you make $50,000 a year $50,000 x 36% divided by 12 months is $1,500 a month.
Although the calculators do say you would be “stretching” at that point, I, for one, think the thought of paying that much of my income for housing would be downright scary!
Finance guru Dave Ramsey, on the other hand, says you should aim to pay no more than 25% of your annual take-home pay (that is your AFTER tax pay). Dave’s recommendation is also based on having a 15-year mortgage (which would mean a shorter loan life but higher payments during that time).
(Side note. Grammarly keeps trying to get me change “how MUCH house can you afford” to “how MANY houseS can you afford”. Oh, if only we could all afford multiple houses, Grammarly.)
Decide What YOU are Comfortable With
It is up to you personally to decide what will fit in your budget, but definitely DON’T go over 36%. And if you can get a house you love at 25% and a 15-year mortgage, well then that would be amazing and definitely the way to go!
If you’re like me and you despise debt with a passion and it stresses you out, then the Dave Ramsey way may be the way to go. Part of the reason I’m going to make the leap into travel therapy/RV life is so we can save AS MUCH AS POSSIBLE for our down payment.
In the ideal world, we’ll buy with cash. In the real world, we will hopefully just have a small mortgage payment. But I’m dreaming big at this point.
If on the other hand, you feel strongly about having a larger house or living in a specific area of the country, you may have to fork over a bit more.
Whatever you decide, just make sure you will feel comfortable with the payment for the long term; like 30 years long term.
In addition, if you are or want to be a parent and having someone stay at home with the kids is important to you, be sure to calculate how much you can afford keeping in mind that potential loss of salary.
If stay at home parenting isn’t for you and your spouse but you do hope to have kids someday, make sure you keep in mind childcare costs when considering how much you can actually afford to spend on a house.
Don’t want to get hit with either of those and have to downsize to salvage your finances.
How Much to Save for House Down Payment
Another rule of thumb is to save 20% of the house’s purchase price for a down payment. While it is possible to purchase a home with a smaller down payment, there are some things you need to consider when doing that.
For example, you may have to pay private mortgage insurance. You will also have a higher monthly payment than you would if you put more money down.
A little known fact that is worth keeping in mind is that you can withdraw up to $10,000 from a Roth IRA penalty-free to help purchase your first home. While I wouldn’t advise borrowing from your retirement, it is an option that you can consider.
Develop a Timeline
So, first, you need to decide how much house you can afford based on your unique financial situation. Then based on that target number, decide what percent of the total cost you would like to have saved for your down payment.
Say you decide you can comfortably afford a $200,000 house and you want to put down 20%, that means you will need to save $40,000.
Now is the time to develop a timeline for your plan for how to save money for a house. Maybe your dream is to own a house in 1 year. In that case, unless you have a crazy high salary, you may need to adjust some of the numbers above.
If you are looking 2-4 years out, that $40,000 starts to look a lot more realistic.
Decide when you want to buy your house by and how much you want to have saved to figure out exactly how much needs to go into your “house fund” every month to get you there.
Major Takeaways for How to Save Money for a House
Wow, that was a long post. If you have made it to this point, bravo, you are amazing, and I KNOW you are going to get that house you’ve been dreaming about.
Here is a quick summary of how to save money for a house.
1) Look at your income and expenses and decide how much you can comfortably afford to spend on a monthly mortgage payment. Remember to account for future life changes that could lead to a DECREASE in income. If you get a raise, awesome, but don’t count on it when planning what you can afford.
2) Decide how much you want to put down keeping in mind that if it is less than 20% you may end up having to pay for mortgage insurance.
3) Make a timeline for your savings based on how much you need to have saved and when you want to have it saved by. Then calculate how much you will have to set aside each month to reach that point.
4) Automate your savings and pretend you don’t even have that money. This will help you stick to your budget and ensure you reach your down payment goals in the timeline you decided on.
5) Cut costs to save as much money as you can. Don’t go total deprivation mode though as that likely won’t last.
6) Increase income by picking up a side hustle either online or in person. Sell your old junk to make even more money.
7) Find a good place to save your money so you are actually earning a decent interest rate.
2 Comments
Sally Davidson · April 12, 2019 at 6:49 am
Hi Kathryn
This is such a helpful article! Even though I am already a homeowner, I loved your suggestions for how to make more money and the suggestion of high yield savings accounts. Do you have any suggestions for websites that offer freelance writing opportunities?
Good luck on making your dream come true and thanks for the well researched suggestions.
Kathryn Mancewicz · April 12, 2019 at 9:57 pm
Hi Sally!
Thanks so much for your kind words. I am glad to hear you appreciated the information on how to save money for a house!
Flexjobs and Indeed are both places you may be able to find freelance writing jobs. Additionally, many people tend to have the most success networking within Facebook groups they belong to on topics of interest (e.g., if you are interested in real estate maybe you could find some freelance writing work related to that topic from a real estate facebook group, etc.)
Most websites like Upwork and Fivver while probably easier to find jobs tend to not pay well or be worth the time, however you can certainly check them out if you want.
In addition, there are lots of larger blogs that look for freelance writers. You could always reach out to other bloggers you follow to see if they have a need for additional writers.
Let me know if you have any additional questions, and again thanks for the comment! 🙂