When you’re pondering how to save money to buy a house, it can start to feel like you’ll never scrape together enough for a down payment.
Yeah, you already know that Rome wasn’t built in a day. Well, the same holds truefor building a down payment. It takes time!
How to save money for a house
Still,as long as you grease the gearsearly (like now), you’ll barely notice you’re saving until—boom!—one day in the foreseeable future you’ll be sitting on a pile of money that could pave the way to homeownership. Sound good? Good. Here’s how to get started.
Trim any quiet, unnecessary expenses
OK, let’s shift thosepreconceived notions. Contrary to popular belief,the answer to how to save money for a houseisn’t mostly about grueling sacrifice—e.g., holing up in your apartment under a bare light bulb, eating ramen, and piggybacking off your neighbors’ wifi.
“It’s about a lifestyle change,”saysTravis Sickle, a financial adviser with Sickle Hunter Financial Advisors in Tampa, FL.A more sustainable strategy, he says, is to pinpoint yoursilent money siphons that you barely notice. Odds are you could trysome of the following cost-cutting measureswithout feeling the pinch:
- Shuffle your streaming services and slash the ones you don’t watch
- Cut that languishing gym membership and exercise on your own
- Packing your lunch will save you about $60 a month—or $720 a year.
- Bike to work.For a 10-mile commute, biking cansave you around$5 aday,according to Kiplinger—or $1,250 ayear.
- Start a coin jar.Saving all your loose changecan have a big impact—up to $700, according to financial blogger J.D. Roth.
- Turning down your thermostat just 3degrees couldshave almost 10% off your electrical bill, netting you $20 amonth on a $200 bill, or $240 a year.
- Curb thosedinners and drinks out at restaurants, which can quickly add up.If you typically shell out$40 three times a week, reduce that to one eveninga week, and you’ll save $80—or $4,160 per year. (Bonus: It’ll make those times you do indulge more special!)
Open a dedicated account
If you don’t have a savings account, now’s the time to open one. A checking account is great for daily expenses, but when it comes to saving money—well, they don’t call themsavings accounts for nothing. You’ll earn interest on your balance, plus there’s a lot to be said for the mental benefit of having a specific place to stash your down payment. It’s also rewarding to have a dedicated account where you can see how you’re progressing toward your goal.
Financial plannerBob Forrest of Mutual of Omahapoints out that CDs and money market accounts offer higher gains than savings. You’ll need a larger minimum balance than for a regular savings account, but your goal is to make it grow, not shrink, right? If you’re using a CD, just makesure you don’t withdraw the money before the time is up or else you’ll face some stiff penalties.
Automate your savings
If you’re struggling to put enough money awaybecause of the constant temptations to blow your paycheck, consider automating the process. Ask your employer if you can have your paycheck deposited into multiple accounts—if so, instruct itto senda certain percentage of yoursalarydirectly into your savings account. Or go through your bank, setting up automatic withdrawals from your checking to savingsaccountthat will force you to keep spending in check.
Tap into your IRA
Another great place to stash your cash? Atraditional or Roth IRA, says Forrest.In addition to being a tax-friendly retirement vehicle, it allows youtowithdraw up to $10,000 for a home. While withdrawals from atraditional IRA will be taxed, a Roth IRA you’ve owned for more than five years won’t be taxed at all, as long as you’re a first-time home buyer. Just be careful with this method, though, as you will be denting your retirement funds. But combined with othersavings, it can quicklyadd some heft to yourgrowing nest egg.
Check outdown payment assistance programs
Depending on the city and state you live in, you may be eligible for down payment assistance programs, whichprovide money to help people buy a home.Mostoffer up to $15,000, typicallyin the form of a grant or low-interest loan. Most require your income to bebelow thearea median. But even if you make more,do your research—there are programs that provide funds for higher-income households.
If saving up for a down payment is a challenge, it may surprise you to know that you don’t always need to save 20% for a down payment. With certain kinds of loans, you can get away with a down payment as low as 3.5% (for FHA loans) or even 0% (USDA loans).
