HOW TO SAVE FOR A HOUSE: FAST AND EASY TIPS

Vault’s Viewpoint

• You’ll need to save an average of 8% of a home’s sales price as a down payment, along with 1% to 3% in closing costs. You may also need additional funds for moving and repairs.
• Reducing expenses and boosting your income may help you reach your savings goal faster.
• Remember that you’ll need to factor in closing costs and moving expenses in addition to the down payment.

Five Strategies to Save for a House

Take care of any high-interest debt and other obligations before you start saving for a house.

In addition to freeing up cash flow, eliminating these debts will lower your debt-to-income ratio and may increase your chances of getting approved for a loan.

Create a Plan

A big part of learning how to save up for a house is knowing how much you want to save.

The first step is to figure out your housing budget, and from there you can deduce the size of the down payment you will need. Additionally, you need to know the average closing costs in the area where you want to buy a house as you’ll have to either save up for those or roll them into the loan.

Don’t forget the miscellaneous costs of buying a new home, such as a moving truck, utility deposits and stocking essentials like lightbulbs and toilet paper. Building a buffer into your savings plan is a good idea because you never know how negotiations will turn out or what unexpected costs may arise.

It’s easier to cope with price increases or other small changes if you have more money in the bank.

Revisit Your Budget

Budget tweaks will likely be necessary to reach your savings goals. When saving for a house, cutting back on discretionary spending is the quickest way to speed up the process. While you don’t have to give up everything you’re used to, the more spending you can limit, the more cash you can funnel toward your savings goal.

Listed below are a few areas where you can consider cutting back to save for a home:

• Cancel unnecessary subscriptions
• Limit excessive spending on dining out, grooming appointments, coffee and impulsive shopping
• Shop for cheaper insurance, cell phone providers and cable plans
• Plan your meals, shop sales, and use coupons to decrease grocery spending
• Refinance loans to a lower rate to free up monthly cash flow

Make Saving Easy

Saving for a home may seem overwhelming at first, adding another big task to your list. To make life easier for yourself, follow these tips:

• Bank windfalls: If you receive a tax refund, work bonus or other large sum of money, immediately save it rather than spend it. You’ll boost your savings and possibly be able to buy a house sooner.
• Save raises: Avoid escalating your lifestyle because you make more money. Instead, keep the same lifestyle and send the difference in your new income to your savings account.
• Set up automatic savings: Set up automatic transfers on paydays from your checking to your savings account. You can also ask your employer to split your paycheck between checking and savings.

Supplement Your Income

Consider increasing your income if you think saving up for a house is impossible with your current salary and budget. You can earn a side income by freelancing, babysitting, pet sitting or working for gig economy apps like DoorDash or Instacart.

Immediately deposit any money you earn from side hustles into your savings account to prevent accidental spending. Having a side hustle relieves the pressure of cutting back on an already tight budget and speeds up your savings timeline.

Decrease Your Housing Costs

If you have the option, consider downsizing your living situation.

For instance, if you have relatives you can live with rent-free while you save for a house, you can reach your goal faster. If not, try finding a cheaper apartment or house to save more money.

If your landlord allows it, consider bringing in a roommate temporarily if you are stuck in an expensive lease. By splitting the rent, you can save more money towards your dream of home ownership.

How Much Do You Need to Save to Buy a House?

This question is often the biggest one on first-time homebuyers’ minds when they start the home-buying process. Add up the following costs to help you come to an accurate savings target.

Down Payment

Some mortgages require a large down payment, but if you plan to use government-backed financing like an FHA loan, you may qualify for a lower down payment. Note that if you put less than a 20% down payment, your lender will likely require you to pay private mortgage insurance (PMI). This extra fee protects the lender in case you don’t pay back your loan.

Consider talking to a loan officer about the types of mortgage loans available to you based on your current credit score, income and other factors to determine the size of down payment you’ll need.

In addition to the down payment, you’ll need to set aside money for closing costs. These vary greatly by state (thanks to taxes) but usually range between 1% and 3% of the purchase price. This means $1,000 to $53,000 for every $100,000 borrowed.

Unless you can wrap your closing costs into your loan, you must pay these upfront.

Shop around for the best mortgage terms and lowest closing costs. Pay close attention to fees like origination fees, discount points and underwriting fees. Don’t be afraid to ask questions about them and negotiate with lenders to get some of them reduced or waived.

Moving Expenses

Moving expenses can add up quicker than you think. Even if you get friends and family to help you move, you may need to rent a truck or hire professionals to move large appliances.

You can save money on moving by DIYing tasks that can be done safely, such as packing and cleaning.

As soon as you take possession of the house, you’ll need to connect utilities and purchase food. Your utility company may require a deposit. Be prepared with enough savings to live easily after moving in.

Home Maintenance

When saving for a house, you may not think about factoring in home maintenance. Keeping up with pipes that leak and appliances that break can be tough, especially if you don’t buy a brand-new home. According to Thumbtack, the average annual cost of home maintenance on a single-family home is $555 a month. You likely won’t pay that much every month, but big one-time costs like a new roof or HVAC system (combined with smaller repairs like new paint or broken light switches) add up over time.

Buying a house that requires immediate repairs will increase these costs. Before buying a home, make sure you know what expenses you’re getting into and that your savings account has enough money to cover them in addition to the down payment and closing costs.

Where to Keep Your Savings

It is important to put your funds in the right place when learning how to save for a house.

Most people need short liquidity on their home savings (fewer than ten years) so it’s best to keep the funds out of investments that are risky or tie up your money for long periods. Instead, consider FDIC-insured accounts, like short-term CDs or high-yield savings accounts. Look for an account that pays a high interest rate to make your money work for you.

However, be sure you understand the account’s terms, especially if you put money in CDs. Choose a maturity date long before you’ll need the funds to buy your house.

The post How to Save for a House: Fast and Easy Tips first appeared on Newsweek Vault.

2024-04-22T16:21:01Z dg43tfdfdgfd