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How to Save for a House | Step-by-Step Guide

How to Save for a House | Step-by-Step Guide

Buying a house is a big deal, and if you have been considering purchasing one, you know that they are not cheap. In this guide, we will teach you step by step on how to save for a house. Read on to learn more.


Disclaimer: The information included in this post is for informational purposes only and should not be taken as legal, financial, or DIY advice. We highly suggest consulting a professional before attempting any DIY home improvements or repairs.


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How to Save for a House in 6 Easy Steps

Saving for a house seems like a daunting, if not impossible, endeavor. Luckily, there are some steps that you can take to help make it as easy and quick of a process as possible. In short, these are the steps you should take:

  1. Determine how much you need to save
  2. Develop a personal budget
  3. Ask for a raise
  4. Cut out big spending
  5. Earn some extra income
  6. Pay off your debt

Saving for a home is not always easy, and takes motivation and self-control. Although it seems difficult, it’s not impossible and you can reach your goals if you stick to them. Let’s take an in-depth look at the 6 steps you need to follow to save for a new home. 

Step 1: Determine How Much You Need to Save

Two people talking about how to save for a house by cutting down their expenses

Fizkes/Shutterstock

The first step to beginning to save for any home is to determine how much you’ll need to save. It’s a general rule of thumb that you need to save at least 20% of the home value to be able to afford a down payment. This is a good rule of thumb, but not necessary.

Depending on what your credit score is, you may be able to get a loan with much lower savings. With good credit and income, you can even get a loan with as low as 3% of your down payment. If you qualify for a VA or a USDA loan, you can even buy a home without a down payment.

Having 20% of the down payment will save you money over time. If you choose to get a loan with less, you may need to pay for private mortgage insurance, which will protect the mortgage investor and lenders if you end up defaulting on your loan. 

Step 2: Develop a Personal Budget

Man putting a coin into a glass jar titled Budget

ADragan/Shutterstock

It’ll be impossible to save money if you don’t keep track of where your money is going each month. You’ll need to start by reviewing where all of your income comes from. Add up all of your income for the last 6 months to get a general idea of how much you earn.

Next, look at where all of your money is going. Go through your bank statements and credit card payments and determine where the majority of your money is being spent. Make a list of how much you spend on necessary expenses, such as rent, bills, loan payments, etc.

Next, make a list of how much you spend on less essential things such as shopping, entertainment, restaurants, trips, and more. Once you have a general idea of where your money is going, you can categorize all of your expenses and decide on where you can cut back.

Look for spending areas that you can realistically live without. Factor in what amount you need to save each month for your down payment. Make this a non-optional bill you have to pay and put it into savings as soon as you get paid.

When you know exactly how much you’ll be saving each month, you’ll know how long it’ll take you to reach your down payment goal. Having a budget and sticking to it is 100% necessary for saving for a home.

Step 3: Ask for a Raise

Over-the-shoulder shot of a guy in a black suit and white shirt talking to his boss asking for raise for a piece on how to save for a house

Marvent/Shutterstock

If you’ve been working hard and are due for a pay increase, it’s time for you to ask for a raise and keep the extra earnings for your down payment. There are a few things to remember if you’re considering asking for a pay increase.

The first thing to remember is to make sure you’re prepared. Have a list of reasons why you deserve more money ready to go before you begin the discussion with your higher-ups.

Get specific data related to your performance and have a list of impacts you have made and projects you have worked on. It will show them that you’re valuable and worth the money. You should also remember that it’s important to time it right.

Wait until things are calm and your boss isn’t stressed or overwhelmed. Set up a time to have a private meeting when things aren’t busy and when you’ll have plenty of time to talk. If you have an annual performance review or you just completed something substantial and impressive, this would be a good time to ask.

If you ask for a raise and are not offered one, then perhaps you might consider changing jobs for something that pays more to allow you to save for your down payment. You can leverage new job offers with your current company for more money in some situations. 

Step 4: Cut Out Big Spending

Woman holding a piece of cardboard that says Expenses in all capital letters and cutting it down the middle for a piece on how to save for a house

Tomertu/Shutterstock

We already discussed cutting out unnecessary expenses like restaurants and shopping, but it’s important to avoid huge expenses that might arise, tempting you to dip into your savings.

For example, if you go on a big family trip every summer, you may have to consider taking a year off and meeting up with your family in your hometown for dinner instead. Purchasing a new car or new bike or any other large purchase should probably be postponed until after you have secured enough money for a down payment.

It’s also a good idea to consider downsizing your life for some time to save more. This could include finding a smaller apartment with less rent for a year or so.

It could also mean selling your car and getting something less expensive or relocating to a cheaper area while you save for your home. You can look into your monthly bills and see what you can cut back.

You can look into comparing car insurance rates to find the cheapest ones, refinancing your student loans or your car loans, look into bundling cell phone and internet to save money, and go through all of your subscriptions to see what you can cut out or what you can share with friends. 

Step 5: Earn Some Extra Income

Blue wallet with money sticking out of the top that says side hustle

Ariya J/Shutterstock

Getting a side hustle, selling some of your stuff, renting out a spare bedroom, or selling something you make are just a few of the ways that you could make some extra money to help you reach your savings goals.

Working a second job is becoming popular and more common than ever before with the introduction of app jobs that allow you to work whenever you can and choose your schedule.

Driving for a rideshare company like Lyft or Uber allows you to work when you please, and evenings and weekends are their busiest times when you have the potential to make the most money. Dog walking and pet sitting can be rewarding, not to mention relaxing, too.

Testing websites and apps is another way to get some extra dough. If you’re good at a particular skill, such as writing or art, you can look into freelancing gigs as well. 

Step 6: Pay Off Debt

Image of a calendar with a red pin in it holding up a note that says pay off credit cards

xtock/Shutterstock

If you’re planning to save up for a home, then spending your extra income on your debt might seem like a bad idea. However, if you have the time and ability to knock out your debt before purchasing a home, you’ll have a better chance of getting a mortgage.

One of the first things lenders look at is your debt-to-income ratio. The more debt you have, the less they will want to lend you money. This will cost you more money down the road, through higher down payments and higher interest rates.

If you have the time to spare, knock out your credit card debt, student loans, car loans, and other debt before beginning your down payment savings. 

Things to Consider

Now that you have made a budget and know how to save for a house, here are some things to keep in mind:

  • Consider what other expenses you’ll need to save for as well, including the closing cost, which is usually 2% – 5% of your loan amount and is needed to finalize a mortgage. 
  • Other expenses may also include moving costs and renovation costs if your new house needs some fixing up.
  • Shop around for your best loan options and find one that will fit your budget and save you the most money in the long term. 
  • Consider depositing your tax refunds, birthday money, work bonuses, and any other income directly into your savings so it boosts your savings and your home-owner motivation. 
  • Consider setting up automatic savings transfers with your bank account. You can ask your bank to automatically take money from your checking each month and put it in your savings without you having to do anything. 
  • Consider canceling extra credit cards and only use them in an emergency. Try to only spend the money you have. 
  • Consider downloading a money tracking app that can help you visualize your savings and keep you on track.
  • Consider posting photos around your house of your dream home to keep you motivated and focused on your goals. 

So, How Do You Save for a House?

With a bit of planning, some dedication, and a lot of spending self-control, you’ll be able to save for a home in no time. It takes time and effort, but if you constantly remind yourself of your goals, you’ll have money saved in no time.

Figuring out how to save for a house involves making a budget, cutting unnecessary spending, earning extra money, and managing your finances constantly, which will get you to where you need to be. With focus and dedication, you’ll own your home before you know it!

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