March 11, 2021
7 MINUTE READ
Are you struggling to think of the best way to save money for a house? Learning how to save to buy a house takes time, patience, and self-discipline. Your dream home is probably the most expensive and important purchase you’ll make in your lifetime, but getting the money together for a down payment can be a painstaking process.
However, once you understand the basics of how to save up for a house and can differentiate between home and regular savings, saving for a house becomes much more manageable.
In this article, we’ll provide a wealth of information on how to save for a house. Using our knowledge and experience, we’ll outline some of the leading strategies to implement as you work towards the joys of homeownership.
Read on to find out some of the best ways to save for a house:
If you want to buy a house, you’ll first need to budget and save for a down payment.
A down payment is the amount of money you provide as a deposit when you purchase a property. Although you can borrow most of the money towards a property from the bank in the form of a mortgage, you must provide a portion of the cost upfront.
Your lender sees a downpayment as a form of insurance. Once you provide this money out of your own pocket, you’ve officially invested in a property and proved you’re capable of saving. The fact that you’ve saved for a down payment shows that you’re likely to keep up with payments across the lifetime of your mortgage.
Once you’ve saved for your first down payment, you’ll feel more confident about your finances, and you can rest assured that the banks will favor you for future credit. The more money you provide for your down payment, the less your monthly house payments will be, allowing you to pursue a shorter mortgage term.
Before you figure out how to save money to buy a house, you need to calculate how much to save.
It’s no secret: people hate debt. Most of us pick up student loans, car loans, credit card debts, and more throughout our lives. This leaves us with less money available to do the things that we enjoy.
So, how much money should you save for your down payment?
Follow these three steps to figure out an estimated amount:
The golden rule here is to spend no more than 25% of your monthly earnings on your mortgage payment. If you allocate too much of your income for your monthly payment, you may find yourself in financial turmoil when facing an emergency. Additionally, you may leave yourself short of income for embracing new opportunities as they emerge.
To calculate 25% of your monthly income, note how much money you take home each month and multiple this number by .25.
When it comes to deciding what type of mortgage to select, we recommend taking a 15-year fixed rate. This type of loan will be paid in no time and will save you thousands of dollars compared to a traditional 30-year option.
You can use this free mortgage calculator to work out the numbers.
As an example, let’s imagine that your monthly income is $4,200, meaning that you can afford $1,050 a month in mortgage payments. If we use a mortgage calculator and set the interest rate to 3.66%, it tells us that you can afford to purchase a $145,000 property with a 20% down payment. Alternatively, you can afford a $130,000 property with a 15% down payment.
Spend a little time on the mortgage calculator until you hit your preferred goal of total monthly payments.
Figure out the percentage that works best for your financial situation. In an ideal world, you’ll try to save 20%, as this will lower your interest rates, help you avoid private mortgage insurance (PMI), and open you up to a 15-year mortgage.
If you multiply the total mortgage amount by the percentage you can afford to pay towards purchasing a property, you’ve got your savings goal.
With your savings goal in place, let’s look at some tried and tested methods on how to save for a house:
If you have a lot of debt, saving for a house becomes more challenging as chunks of your income are allocated toward repayments. These debts can also make it challenging to qualify for a mortgage. So, if you’re in debt, we recommend doing what you can to reduce the amount you owe. For example, If you have a high-interest credit card, try to pay off as much as possible and transfer the outstanding balance to a low-interest card.
Although inadvisable if you’re close to retirement, this is an excellent idea if you’re young and actively contributing to a 401(k). Temporarily diverting this cash to down payment savings can make a massive difference in how fast you can save for a house.
Whether it’s your birthday, Christmas, wedding, or any other special occasion, ask for cash instead of gifts from family and friends. When they ask what you would like as a present, tell them that a monetary gift will help you save towards a house down payment.
When learning about how to save for a house , technology can fast become your best friend. There are some excellent apps and online services currently available designed to help you save money. Transferwise lets you siphon away cash into a virtual money jar at set time intervals, whereas apps like Digit can automate daily savings until you reach your goal.
It’s also worth giving Acorns a try. This app rounds up purchases to the nearest dollar and saves the difference in an investment account.
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Saving money for a house is a form of real estate investing, and there’s a huge difference between regular saving and investing:
When saving for a house, you’ll need to learn to cut back, but these cuts will be worth it once you sign your mortgage contract and move into your property.
Now that you’re equipped with some expert knowledge on how to save for a house, we’ll outline some of the helpful resources mentioned in this post in the order you should use them:
Purchasing a property can be a long process that absorbs a vast chunk of your savings, but it’s good preparation for homeownership. Once you own your home, there will be ongoing expenses for maintenance and renovations. As a result, look at saving money for a house as preparation for long-term financial control and security.
Now that you know how to save for a house , you may need a small loan to boost your savings and get your foot on the property ladder.
Here at Reali, you can apply for mortgage online, and can get you pre-approved for a super-fast home loan. Check your rates and take a step toward financial freedom today.