8 Tips To Start Saving for a Home

Get Started Saving for Your New Home Today

Saving for a house can feel like a major challenge, but if you take a smart and systematic approach, you can do it successfully. You'll want to start by estimating your costs, then take steps like automating savings, cutting spending, and boosting income.

This guide will explain how you can save for a home and get the money you need for the home of your dreams.

1. Estimate Home Buying Costs

The first step to saving for a home is to understand how much you need to save (so you can set a clear and realistic goal). There are certain common costs you'll have to pay when buying a home, so start by estimating the savings you'll need for each one.

Down Payment

For many people, saving money for a down payment for the house is the biggest challenge to homeownership.

Ideally, you'll put down 20% of what the home costs, which means you'll probably need to save a lot of money. However, lower down payments are very common (in fact, the majority of homebuyers put less than 20% down). Depending on your loan type, you could put as little as 0% down.

Still, saving as much as possible for a down payment (at least 10% to 20%) will allow you to have more choices of loan options and lower borrowing costs.

Closing Costs

You'll also have to pay closing costs when you buy a home, so estimate how much you'll need to save to cover them.

Closing costs include things like your loan origination fee and appraisal costs. They usually run you around 2% to 5% of the cost of your new home, but you can use our online tool to help you calculate closing costs and set your savings goal.

Moving, Remodeling, and Repair Costs

You'll probably need to pay for a move to your new home, which could cost several thousand dollars. If you must make any upgrades or updates to the house you're buying, you'll also have to save for home renovation costs.

2. Research Mortgage Options

The type of mortgage you get affects how much you must save. The most common types of mortgages include:

• Conventional loans, which usually require a minimum down payment of 3% or 5% of your home’s value, and which tend to offer less flexibility in qualification requirements.
• FHA Loans, which require a minimum 3.5% down payment with a credit score of 580 or higher, or 10% down with a credit score of 500. FHA loans tend to have more flexible qualifying requirements but come with upfront fees and mandatory FHA mortgage insurance.
• VA Loans, which require 0% down and have relaxed qualifying requirements for eligible military members, veterans, and qualifying family members -- but also have upfront fees (VA loan funding fee).
• USDA loans, which may require a 0% down payment and which typically have relaxed qualifying requirements but come with an upfront USDA loan guarantee fee.

3. Set Up a Dedicated High-Yield Savings Account

You should keep the money you are saving for a home separate from the money in your checking account, so you don't spend it.

Use a high-yield savings account, money market account, or CD to keep the money safe in an FDIC-insured account and earn more interest than you would in a checking account or regular savings account.

4. Automate Your Savings

It is easier to save for a down payment if you automate the process.

Decide how much you can afford to save each month toward your home purchase and arrange to have that amount transferred from your checking account to savings on payday. That way, you are far less likely to miss a contribution.

5. Reduce Your Monthly Spending

Although it can be very difficult, If you can reduce some of your monthly spending, you can redirect that money to saving for a home. Some ways to reduce spending include the following:

• Cancel unnecessary monthly subscriptions or memberships that you don't use often, such as streaming services, gym memberships, or meal kits
• Stop eating out temporarily, especially for lunches at work
• Meal plan around what's on sale at the grocery store and clip coupons to reduce your grocery bills
• Cut back on streaming services and explore opportunities for free entertainment in your area
• Adjust your thermostat to reduce your utility bills (you might be surprised at how much you save each month by lowering heat or raising AC just a few degrees)
• Negotiate your cell phone bill or choose a cheaper plan
• Carpool or use public transportation to save on gas

6. Find Ways To Boost Your Income

You can also save more for a home if you earn more. Look for opportunities to increase income by pursuing a promotion, negotiating a pay increase, taking on a side hustle, or participating in bonus programs at work. Consider a part-time job at a local business (this can be even more appealing if you’re lucky enough to find a business that is related to your favorite hobbies).

7. Save Bonuses, Tax Returns, and Other Windfalls

If you receive any unexpected money, such as from a job bonus, tax refund, or gift, put that money into your home savings. Deposit it into your separate high-interest account as soon as you get it to maximize interest and help you get to your savings goal as quickly as possible.

8. Prioritize Paying Down High-Interest Debt

Focus on paying down your current high-interest debt. This will free up more money to put into saving for a home because you’ll be paying less monthly interest overall. Paying down your debt can also help you qualify for an affordable home loan at the lowest rates, since lenders look at total debt when deciding how much you can borrow.

Final Thoughts: Tips To Save Up for a New Home

Following these tips can help you save up for a new home, so get started ASAP. We’re always happy to help you prepare to buy a new home, so reach out to Freedom Mortgage to get prequalified for a mortgage today. We’ll find you the best mortgage to help you afford your home and save you the most money.