How to Save Money for a House

Reduce Debt:

In starting your savings journey, make sure that you will pay off all of your debts the best you can. It is hard to be tangled in a new debt when you have previous ones that still need to be paid off. Keep in mind when getting a home loan in the first place, banks do not like to see other outstanding balances that they are unaware of. If you decide to try to buy a house anyways even if you have lingering debt, make sure to at least negotiate the debt down to 5% or less if you can so your monthly bills can be more manageable.

Cut Housing Costs:

Another way to save money is to also cut out big monthly payments, this includes your current housing arrangements. If possible, consider living in a more affordable rental or with roommates to reduce your monthly housing expenses. if you can save $800 dollars a month on rent just by having a roommate, that's $9600 a year.

If having a roommate is not an option, you can also negotiate with your landlord to lower your rent or keep the rent stable. If your rent is at least not changing, you can count on your increased pay to help you save. If both options doesn't work out, you can always move to a cheaper location to save more.

Increase Your Income:

If your savings goals can't be met due to having a low income, it may be time to try to increase your income. The obvious way is to get a promotion at your current job or find a better position elsewhere. With home prices appreciating by 10% a year on average, your income will have to follow to keep up with pricing demands. Feel free to leave a job for a new one due to your housing goals and inflation concerns, your former employers will understand.

If somehow this doesn't work for you, another option is to pick up a side hustle. This includes freelancing or taking a part-time job. Other opportunities also include reselling items, be sure to check out Offerup for good deals. The extra cash you will get can added to your savings.

Automate Savings:

To me this is the best way to save because it does not give you a choice, set up an automatic transfer every time you get paid, either biweekly or monthly. This ensures that you consistently save money without having to think about it. As an added benefit, you can also open up a high-yield savings account which on average gives you an extra 3-5% annually. In the course of five to ten years, you maybe able to compound an extra 15-30% or more to your total savings.

Research the Housing Market for a better deal:

When doing research on the housing market, understand that all houses aren't created equal. depending on location, time, and quality, houses will vary. If your target home is closer to the beach, the price will be higher than if it is in the desert. Home value is determined by who is willing to pay the most for them, not by the natural value it has when built.

Depending on your goals, do you need a house that has a luxurious pool, or marble flooring, these added additions may increase or decrease the price of the home depending on what trends are valuable at the moment. If you want a cheaper deal, make sure to stay away from favorable trends. And if there are trends that you do like but can't afford, you can always plan to remodel your house later to your liking.

Another word of advice is to be mindful of the time you are buying your house, If you are buying a home during the holidays, you will likely receive a better deal due to fewer buyers to compete with. This is due to the idea that people are more interested in having family reunions than going to open houses.

Other things to consider are also the year you are buying your home. Unfortunately, it is foretold that every eight to twelve years, a national or global crisis will happen which will create an economic hurdle. Events like these will likely increase or decrease the home value which can be your time to strike on a good deal. An example is the 2008 housing crisis, which greatly dropped home prices, a little more than a decade later, the Coronavirus took the world by storm, which reduced interest rates close to zero, but also increased home prices significantly. Depending on the outcome, you may have to save extra or realize you saved up more than you bargained for.

Research the Housing Market for a better deal:

When doing research on the housing market, understand that all houses aren't created equal. depending on location, time, and quality, houses will vary. If your target home is closer to the beach, the price will be higher than if it is in the desert. Home value is determined by who is willing to pay the most for them, not by the natural value it has when built.

Depending on your goals, do you need a house that has a luxurious pool, or marble flooring, these added additions may increase or decrease the price of the home depending on what trends are valuable at the moment. If you want a cheaper deal, make sure to stay away from favorable trends. And if there are trends that you do like but can't afford, you can always plan to remodel your house later to your liking.

Another word of advice is to be mindful of the time you are buying your house, If you are buying a home during the holidays, you will likely receive a better deal due to fewer buyers to compete with. This is due to the idea that people are more interested in having family reunions than going to open houses.

Other things to consider are also the year you are buying your home. Unfortunately, it is foretold that every eight to twelve years, a national or global crisis will happen which will create an economic hurdle. Events like these will likely increase or decrease the home value which can be your time to strike on a good deal. An example is the 2008 housing crisis, which greatly dropped home prices, a little more than a decade later, the Coronavirus took the world by storm, which reduced interest rates close to zero, but also increased home prices significantly. Depending on the outcome, you may have to save extra or realize you saved up more than you bargained for.

Set Clear Goals:

Besides all of this extra information, a good rule of thumb is to save enough for a down payment to avoid paying private mortgage insurance (PMI). Even though buying a house without it is still an option, you will need a higher income to be able to keep up with the extra mortgage fees. To avoid paying private mortgage insurance, usually, you will be required to have a down payment of at least 20% of the purchase price of the home. The higher the down payment, the less your monthly mortgage payments will be. Whether you decide to make a down payment or not is up to you and your goals. Just remember to also accommodate your savings to include, costing costs and inspection fees.

Next is to set up a target price that you are comfortable with when you do actually buy the house. Depending on where you live, prices can vary from year to year, so just make sure you have another 10% above your decided down payment amount just in case.

Lastly, you should set a timeline for when you want to buy the house. This will help you establish a savings target and create a sense of urgency. Whether you will be buying within five years or ten years, this will give you an understanding of how much you should be saving to be able to purchase a house. Keep in mind home prices tend to appreciate over time, account for this when you are planning out your savings journey.

What are you saving for?

To begin setting your savings goals, you must understand what you are saving for. Although the answer is a house, you have to ask what encompasses the savings needed to buy the house. Usually, what it comes down to is closing costs, down payment, and inspection fees, which are all upfront costs for a home purchase. Although having a buyer's agent does cost money, it is usually included in the overall purchase price of the house, so we will just omit them for now. But for those that want to know, Their commission is 3% of the sale price.

To continue, for those that don't know, a down payment is a sum of money that you will already have to buy a fraction of the house, the other fraction that is unpaid will be covered by your home loan. The down payment amount can be any amount of cash, just make sure to double-check with your lender if they require a minimum. The closing costs are other fees associated with the process of real estate transactions which include escrow fees, attorney fees, appraisal fees, etc... These fees may be negotiable by the seller on a good day but don't be surprised if you have to pay all of them, they usually are priced between 3-6% of the mortgage loan amount. Although inspection fees may be part of the closing cost, there are some situations where they are not covered, and you will have to pay to get an inspector from your real estate agent. Home inspections are usually priced between $500-$1000.

Other things to be mindful of are reserves and moving expenses. It is a good habit to keep at least 3 months' worth of cash reserves which are directly correlated to your future mortgage amount. Moving expenses on the other hand can be between $500 to $3000, depending on how many things you want to keep in your new house.

In conclusion, saving for a house is a substantial financial goal that demands dedication, discipline, and a well-structured plan. Throughout this journey, you've learned the importance of setting clear goals, creating a budget, and making conscious choices about your spending. By automating your savings, reducing debt, and exploring opportunities to increase your income, you've paved the way for a brighter financial future.