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How to save for a house

By Liz Keuler

July 2020

It's the most-dreaded job interview question: Where do you see yourself in 5 years?

But career goals aside, focus on the "where" in that question. If buying a house is part of your plan, a big part of that plan is saving for a down payment — your initial investment in the home. It can be a daunting prospect, but setting a realistic goal and focusing on your budget can make saving more manageable. Here are a few tips for how to save to buy a house.

How much do you need?

To really be effective, set a goal for how much you need to save for a down payment. But how do you arrive at that dollar amount?

First, look at real estate listings in your favored neighborhoods to get a sense of how much houses cost. How many bedrooms and bathrooms do you need? Does the house have to be move-in ready, or are you willing to renovate? Look for houses that are comparable to what you would consider down the road to determine a rough price range.

Next, think about a down payment as a percentage of your price range. You may have heard that you need to put 20% down – but depending on the terms of your loan, you can put down as little as 3%. Learn more about low-down-payment mortgage options like private mortgage insurance here.

A larger down payment generally means a smaller monthly payment and more equity. A smaller down payment may mean a larger mortgage payment every month but may also help you afford to buy a home sooner or expand your homebuying options. Play around with our down payment calculator to see how different down payment levels will affect your savings and monthly mortgage payment.

Speaking of savings: You don't want to wipe out your savings completely when you make a down payment. Make sure your savings includes an emergency fund equal to 3 to 6 months of expenses.

When do you want to buy a house?

Now that you have an idea of how much you'll need for a down payment, do you know when you want to buy? If so, you can break your down payment savings goal into more manageable terms.

Let's say you've set a goal to save up for a 5% down payment on a $300,000 home, or $15,000. You already have enough saved for an emergency fund, and you think you have about $3,000 you could put toward the down payment. You're hoping to buy in about 3 years. That means you need to save another $12,000 over those 3 years, or $4,000 a year. That's about $334 a month.

Now that you've got a monthly goal, ask yourself:

  • Is this monthly saving goal doable?
  • How much are you already setting aside each month?
  • Could you save more?
  • Do you need to adjust your goal, either by deciding you could put less down (5% instead of 10%, for example) or by rethinking your timeline?

Tips for monthly saving

The most airtight savings plans start with a budget! When you know where your money is going every month, you can see where you might be able to trim unnecessary expenses.

In fact, most homebuyers make some sacrifices in the short term to save up for a down payment. In their 2020 Homebuyer and Seller Generational Trends report, the National Association of Realtors reported that:

  • More than a third of buyers age 22-39 cut spending on luxury items or non-essential items
  • About a third of buyers age 22-39 cut spending on entertainment
  • About a quarter of buyers age 22-39 cut spending on clothes

Smaller percentages of buyers in the survey canceled vacation plans, took on a second job or made only the minimum payments on other bills (never less than the minimum — that won't be good for your credit score).

Once you scour your budget for all the places where you can scoop up some savings, see how your total monthly savings number compares with your goal. Do you need to tweak either your goal or your monthly savings plan?

Then, automate regular transfers from checking to savings — either monthly, or after every paycheck. You want your savings building in steady increments, almost out of sight (and out of temptation). Check in on your monthly budget regularly and adjust as needed.

Finally — to accelerate saving for a house, channel any additional funds you may receive from raises or bonuses directly into your savings. It's tempting to upgrade your expenses when you start earning more money, but if you're serious about buying a house, any additional funds will get you there faster!

Justin Taylor

This is very helpful information

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Liz Keuler is the editor of Readynest. She spent a decade meandering through radio, nonprofits and the corporate world before convincing MGIC to hire her based on her staunch grammatical convictions. She lives in a charming 100-year-old bungalow on Milwaukee’s East Side. Her interests include old Ernst Lubitsch films, new action movies, 60s girl pop, Regency romance novels, word games, sewing and shallots.
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