• Ben Stiller
• Aug 25, 2023
• Home Buyer
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Becoming a homeowner is a life milestone that many aspire to achieve; it’s the American (and worldwide) dream. However, one of the most significant barriers to homeownership is saving for a down payment, especially in competitive markets. The upfront cash you'll need when getting a mortgage to buy your first home is substantial, but it’s not impossible to set these funds aside when you have a solid strategy in place. In this guide, we'll cover tips and strategies for would-be homeowners to save for a down payment.

How to Start Saving for a House - Determine Clear Goals

Before you embark on your homeownership journey, setting clear goals is crucial. Determine your total savings target and establish a deadline for achieving it. Your primary savings goals should include:

The amount required for a down payment can vary, depending on the type of mortgage and lender you choose. Some lenders may require as little as 3% of the home's purchase price, but typically, you’ll see more borrowers opt to put 10-20% down to keep the monthly mortgage payments more manageable. Utilizing a down payment calculator can help you set a realistic savings goal.

These expenses typically amount to about 2% to 5% of your loan amount and cover various fees associated with finalizing your mortgage. Even if you purchase a move-in ready home, there will be additional expenses, such as furnishing and making necessary repairs or improvements.

Scour Your Budget for Ways to Save

While giving up your daily latte or favorite streaming service won't entirely finance your dream home, cutting back on certain expenses can significantly accelerate your savings. Here are some areas to consider:

Investigate whether you can reduce your car insurance, rental insurance, health insurance, etc, rates by shopping around for better deals.

Explore the possibility of bundling your cable and internet services or adjusting your cell phone plan to save on monthly expenses. Also, trim unnecessary expenses by canceling subscriptions you no longer use.

If you have outstanding student loans or an auto loan, consider refinancing to lower your monthly payments, freeing up more funds for your down payment fund. To better understand your spending habits, track your monthly expenses to identify areas where you can cut back.

How to Start Saving for a House: Automation

To ensure consistent progress toward your savings goal, automate your savings by setting up automatic transfers from your checking to your savings account; this keeps your money out of immediate reach and helps you stay disciplined.

While investing in the stock market can be lucrative over the long term, it's too volatile for short-term goals like saving for a house. Instead, consider high-yield savings, money market accounts, or certificates of deposit (CDs) for your down payment fund. Timed CDs can mature just before you plan to purchase your home, maximizing your savings with competitive interest rates.

Any unexpected financial windfalls, such as tax refunds, inheritances, bonuses, or salary raises, can significantly boost your down-payment savings. Consider directing these funds directly into your down payment fund before you have a chance to spend them. These extra contributions can bolster your savings and serve as powerful motivators to keep you on track toward homeownership.

How to Start Saving for a House - Stay Organized and Focused

You can make homeownership a reality by staying focused and realistic about your options. Use all the tools at your disposal and explore different mortgage options and state or government programs in your area.

Remember, using a document organizer to situate the documents needed for a mortgage can simplify the application process once you begin seeking mortgage approval and making offers. Check out our accounting first-time homebuyer tips blog for more helpful information!