There’s really no way around it — buying a home is a big deal. It doesn’t matter if it’s a quaint little starter house or a carefully constructed dream home, the emotional experience of purchasing a place to live is a huge milestone for many — both in personal finance and in life.
Buying a home will also, in most cases, be the most expensive purchase you’ll ever make. With the average home value sitting just under $350,000 heading into 2024, along with closing costs, agent commissions, mortgage loans, and a rising federal interest rate, buying a home can feel a little overwhelming, especially for first-time homebuyers.
While homeownership takes some serious planning and saving, it’s definitely doable — and it’s totally worth it. Whether you’ve been kicking around the idea of home buying for a while or you’re just now considering it, here’s a look at some strategies to save up enough money for a new place of your own.
So, how much will you need?
The short answer is that it really depends on a few factors. Are you interested in building your own place? Will the property you’re looking at need repairs or renovations? What does your credit look like? What type of mortgage rate will you get, and will you be able to afford the monthly payment?
Here’s the bottom line: you’ll need enough money to cover all the costs of buying the home, plus any renovations needed and the additional costs that come with moving. Plus, you’ll need to handle the ongoing costs of your mortgage, property taxes, and insurance. Let’s take a look.
Your down payment
Your biggest upfront expense when buying a home will usually be the down payment — you’ll pay a percentage of the cost of the home’s purchase price before moving in, and you’ll borrow the rest. This is often required by the mortgage lender as a show of your initial stake in the purchase.
How much can you plan on paying? Well, that depends on a variety of factors (including your credit score), but plan on a minimum of 10% of the purchase price.
However, if you’re still just establishing yourself and your credit score isn’t in the upper echelon, you can expect to put down close to 20% for your best chance of consideration. This can also help you sidestep private mortgage insurance (PMI), which would make you responsible for a lender-protection premium.
If you’re looking at a home with some wiggle room on the price, you may want to try negotiating—it can make a real difference in your down payment savings as well as your mortgage!
Closing costs
Along with your down payment, you’ll be responsible for taking care of closing costs — separate fees for the legal process of transferring home ownership. If this is your first time buying a home, make sure you factor in those closing costs when you’re starting to crunch the numbers. They’ll usually be around 3-6% of your mortgage amount.
Mortgage
Whatever you don’t have in cash, you’ll need to borrow. That total amount can be eye-popping, especially for a first-time buyer. Just remember you’ll have a long time to pay it back — often 30 years. The other piece of good news is that interest rates tend to be lower for homes than other loans. That’s because the house itself acts as collateral. Any good real estate agent can help you run the numbers to see what your monthly payments will be at different loan amounts and rates.
Taxes and insurance
Your new home will come with annual property taxes, and your mortgage lender will require you to keep a homeowner’s insurance policy on the property. In some mortgages, taxes and insurance will be covered by your monthly payments. In others, they won’t be. Be sure you understand whether these are separate costs you’ll need to cover.
Home repairs and renovations
It’s easy to focus on saving money for your new home, but don’t forget any additional expenses you may need to put into your existing residence to sell it. Hopefully, you haven’t let your humble abode slide into a place of disrepair, but a lived-in home can definitely need a little TLC when it comes time to change ownership. A walk-through with a realtor or home inspector (or both) will give you an idea of what you may need to put into your home before you sell it.
On the other side of the deal, be aware of repairs and renovations when buying your new home as well — especially if you’re moving into a fixer-upper or a home in need of upgrades. Stay mindful of what’s realistic given your budget, and manage “wants” versus “needs.”
At the end of the day, affording a home and the fees associated with the purchase is no small feat. It can be tempting to spend every penny you save on the purchase price of the home itself, but it’s important to hold some of those funds back for any unexpected expenses. You don’t want to find yourself in a tough situation if you need to repair a deck, for example, or if your air conditioner gives up the ghost.
Moving costs
There’s no way around it — moving can be stressful. To mitigate that headache as much as possible, be sure to hire the best movers you can afford. While it may be alluring to round up a few pals and rent a U-Haul, that runs the risk of damaging your possessions, not to mention the risk of personal injury.
When hiring movers, take a look at reviews online and make sure they operate across the entire geographical region of the move. Budget for the move itself, and be sure to include a tip for your movers — it’s hard work loading the truck and unpacking it without damaging your belongings!
Consider compensating them based on the size of the move, their efficiency, and the weather — $50 per mover will show them they did a great job.
How can you save to buy a home?
Okay, cool — are you ready to start saving for the home of your dreams? These tips will help you get ready to afford a wonderful property you can live and thrive in for years to come.
1. Set your savings goals
The best way to get started is by deciding exactly what you can spend.
For your target mortgage payments, start with your gross monthly income — your monthly pay before things like taxes get taken out. Multiply that number by 0.28 to figure out 28% of it. Ideally, you want to keep your mortgage payments at or below that amount.
For your down payment, shoot for 20% of the price if you can. The more money you can put down, the more you can reduce your lender’s risk, so the better the rate you’re likely to get.
Once you have your targets, set a date for when you want to purchase the home, save up for that down payment, and start looking! Consider stashing your nest egg in a high-yield savings account to make your money go that much further.
2. Budget, budget, budget (but make it easy)
Okay, this might seem sort of obvious, but it’s important to stay on track with your savings goal. While you may have the discipline to keep setting money aside when you first formulate your savings plan, staying disciplined and seeing it through can be tough.
Have a hard time sticking with an Excel spreadsheet and manually crunching numbers? A personal finance app can help immensely. An app can automatically track your spending and help you stick with your goals. It can also help you discover easy places where you can save — every little bit helps!
Need some help figuring out a budget that fits your needs? We’ve got you covered.
3. Save windfalls of cash
Tax refund bigger than you expected? Throw it into your savings. Did your Great-aunt Rita leave you a few bucks in her will? Savings account, for sure. Even if you’ve sold your old cache of Pokemon cards for a small fortune, you can pad your savings with that extra money. The more you save, the closer you’ll be to buying a home. When your funds find a home in your bank account, you can watch the money accrue interest and grow your savings.
4. Take on a side hustle
There’s a thriving gig economy in the United States and the opportunity to make extra cash has never been more prevalent. If you want to supplement your income, there are plenty of ways to make it happen. Own a car? Give people rides via Uber or Lyft, or even deliver groceries with InstaCart. If you’re an artist, Etsy provides a great platform to sell your work. Or you can even rub elbows with artists and actors working as a production assistant for shows in your hometown!
Ready to get your side hustle started? Take a look at these 25+ ways to make extra income.
5. Cut down on costs
Living frugally is especially helpful when saving for a large purchase, and it’s a good idea to cut down on costs wherever possible.
This might look like skipping your daily latte and treating yourself on the weekend, or getting your inner Wolfgang Puck on and cooking at home instead of grabbing takeout. If you live in a neighborhood where walking or biking is an option, skip the car and save on gas (or ditch those Uber fees).
Sift through your bank statements (or just look at your app) and see where your money is going — taking stock of superfluous purchases can make a huge difference in saving to buy a home.
Saving money is a surefire way to move toward your goals — we’ve got 14 tips for stacking extra cash.
6. Go easy on the credit card
Racking up credit card debt is a surefire way to delay your financial independence and keep you indebted — especially if you’re tallying up big balances with higher interest rates. If you’re carrying debt, it’s a good idea to pay it off before you start saving. Otherwise, your credit score could identify you as a risky investment to lenders, and you’re going to battle high interest rates on a mortgage.
The best plan of action? Don’t use your credit card unless there’s an absolute emergency, or unless you’re only putting a balance on the card that you can pay off within the month.
Need to a plan to pay off your debt? You guessed it — we can help with that too.
7. Save money with a home inspector
When you find a home you love, be sure to hire an independent home inspector. A home inspection can minimize the risk of purchasing a defective property. Make sure the house is to your satisfaction before signing the agreement — you don’t want to purchase a new home and then find out a few weeks later that you’ll need to replace the roof!
Ask around among your family and friends to find the right inspector for you — it could end up saving you tens of thousands of dollars down the road.
8. Down payment assistance
If you’re a first-time homebuyer, you may qualify for down payment assistance from grants, loans, or other assistance programs. Look into programs in your area to see what might be available, from grants to forgivable or deferred loans with no interest. You can also consider an FHA loan if you qualify.
9. Crowdsource your down payment fund
People set up crowdfunding for plenty of things these days — consider tapping your friends and family via GoFundMe to make a down payment on the home of your dreams. The inflation rates of the past few years have really strapped potential homebuyers for cash. A GoFundMe could be a great avenue to jump-start your savings.
Closing costs and closing thoughts
For most first-time buyers, a home will be the most expensive purchase you’ve ever taken part in — it’s a big deal. But don’t worry, you’ve got this!
While you can’t control the ups and downs of the real estate market, you can control your financial goals. By calculating a figure that’s within your means and staying disciplined with your budget, you can make the down payment and closing costs, cover your mortgage payments, and enjoy the perks of homeownership.
Ready to start saving for your dream home? Download Quicken Simplifi today to automate your savings goals, monitor your spending, and buy a home you’ll love.
