Tips On How To Save Money For A House

Homeownership can be one of the best ways to build wealth. It’s the ultimate stamp of approval that you’ve matured. You’ve established a stable stream of income, and you’re ready to settle.

I consider buying an apartment with my partner at the age of 28 my most significant life achievement so far. It was such a long and tiresome process that when I finally had the keys in my hand, I fell back into the chair and let out a huge breath.

Switching from a shared flat to your own picket white fenced 2500 sq feet house sure sounds good. If only it were that easy to do. With the current economy and student debt at the highest point ever, how does a young adult save for a house? Let me share some tips that worked for me.

The average person with an income of $3 500 can save $43 000 in 24 months by getting a part-time gig, redirecting retirement savings, cutting vacations, buying generic brands, and dining in restaurants only on special occasions.

Have A Clear Savings Plan

Have clear savings plan to save for a future house

Start with setting a goal. Decide on how much money you need.

A great savings goal is 20% of the house price plus some more for buying expenses. Are you terrified of a 20% down payment? It doesn’t have to be that much.

There are mortgage loan plans with as little as a 3% down payment. Some of the loans with lower down payment might require you to pay private mortgage insurance.

Meet with a professional who’ll list out all your options, how much you can afford, and how much you need to save for a down payment.

You might be able to buy your house sooner than you thought!

Create A “Future House” Budget

See where your money goes and where you can make changes. A 50/30/20 budget might be a good starting point.

When we decided to buy our place, the first thing we did was look at our monthly expenses. We made some cuts, stuck to it, and saved for a 20% down payment in 2 years!

Create a budget you can follow in the long run. Don’t over spoil yourself but don’t deprive yourself too.

Make saving for a house a priority, meaning you’ll press pause on all other savings goals.

Pay Off Most Of Your Debt

Pay off as much debt as you can before getting a house

What makes saving for a down payment easier is having no debt. The first thing mortgage lenders look at is your debt to income ratio.

It does sound contradictory to put more money towards debt payoff instead of savings. Have in mind that the more debt you have, the less favorable loan candidate you are.

Create a step by step debt pay off plan. Start by paying off the credit cards, followed by student debt, car loans, or any personal loans you have.

Saving for a down payment without considering debt will slow down your payoff, which leads to interest rates increasing and you paying off more money.

Increase Your Credit Score

Having a higher credit score makes all the difference when buying a house. Mortgage lenders are strict in following their criteria.

 While you don’t need to have a perfect 850 score, anything above 620 puts you on a path to a better loan.

 Have a lower credit score doesn’t mean you won’t get a loan; the FHA offers loans for anyone with a 500 credit score but requires a 10% minimum down payment. 

 To improve your credit score, make sure to pay all your bills on time, and regularly pay off debt. Don’t apply for new credit or loan; pay off your existing credit card balance but don’t close it.

Press Pause On Retirement Savings

Press Pause On Retirement Savings

Maxing out your IRA or making use of your company’s 401K match will have to wait. For the time needed to save money for your house, divert your retirement savings toward down payment savings.

While I don’t suggest doing this if you’re close to retirement, it’s a good option for young adults. As a young adult, you’ll have plenty of time to contribute more to your retirement savings in the future.

Automate Your Savings

Automate your savings

Don’t make house savings the last payment on your list!

When it comes to savings, pay yourself first, or in this case, pay the down payment first.

Automate your savings, so when you get paid, an amount will be deducted from your pay and sent to savings.

Make you don’t have easy access to your savings account – no ATM card. This helps you avoid any temptation of overspending and chipping on your supposedly saved amount.

Cut Your Household Expenses

House build brick and wood in countryside. soft flare sunlight.

Take a look at your monthly utility cost. Search for places where you can make modifications.

Lower your electricity and gas bills by turning down the heat and using cold water more frequently. 

Shop the grocery store’s weekly discounts and plan your meals around those products. Cut on junk food and snacks. Try DIY cleaning products, and use coupons for shopping when possible.

Ask your phone company for a better plan. Cut the cable, Netflix, HBO, and Amazon Prime Video or stick with only one subscription.

Include more free fun in your household, like board games!

Tackle Bad Habits

All those little things that cost you a dollar or $5 add up to a significant sum.

Daily coffee shop trips and happy hour treats can drain your budget.
Try to brew your coffee and quit smoking.

If you’re hopping on winning the lottery – it’s the right time to give up hope and stop buying tickets.

Sober month challenges are an excellent way to cut back on alcohol expenses. You can celebrate with a cocktail when you buy your new house!

Lower Your Rent

Millennials spend about 35.7% of their income on rent. Imagine saving that amount for your future house!

Don’t look at moving back to your parents as a defeat. It can be a fast forward button to buying your own house.

In 2017 young adults spent between $93 000 and $97 000 a year on rent only. Saving even half of this contributes tremendously to your down payment goal.

Living with roommates is a way to save not only on rent and household expenses. Try downsizing to a smaller apartment.

If your job’s location allows it, look for neighborhoods with lower rent prices.

Explore The Outskirts

Consider living in the suburbs if city houses are too expensive

House prices are very dependable on location.

The same square footage costs significantly more if you’re looking to buy in popular neighborhoods.

Explore the outskirts of your city. You can find safe, quiet, and less crowded neighborhoods.

Affordable houses with spacious yards are a rarity in the city, while the outskirts are filled with them.

A cheaper house requires a lower down payment that you can save for faster and buy it sooner.

Skip Luxuries

A lifestyle that leaves you living paycheck to paycheck will never lead you to become a homeowner.

Determine all the small and big luxuries you can cut. Living well below your means will save you thousands a year and bring you closer to buying a house.

For a while, forget about luxury vacations, a brand new car, branded clothes, expensive gifts, frequent trips to the hairdresser, or cosmetics salon.

Get A Side Hustle

Getting a side job has never been easier. It doesn’t have to be something you must do every day in specific hours.

List your talents and skills and find out what can bring you money.

You can try freelancing, driving for Uber or Lyft, selling handcrafts on Etsy, babysitting, or walking your neighbors’ dogs.

If your job offers good pay for overtime hours, put more hours when you can.

Ask For A Raise

Check where your paycheck rates on salary comparison websites. Are you being paid enough, or is there a place for improvement?

If you think you contribute significantly to your workplace and are not compensated enough, ask for a raise.

There is no loss in asking. But make sure to go prepared if you get offered a promotion, check on how it will affect your salary.

Sometimes an employer will offer promotions for the sake of changing your job title but not your salary.

Don’t Be Ashamed To Ask For Help

Don't Be Ashamed To Ask For Help

Let people around you know you’re looking into buying a house.

I turned to my friends who are already homeowners to ask for guidance. And it turned my perspective around.

Tell your family you’re saving for a house. When gift season approaches, let them know you’ll appreciate cash before anything else. 

The chances are they’ll be happy to help you fulfill your goal.

Bottom Line

Trust the process and don’t lose motivation.

Depending on how much down payment you decide on, you can save the amount in 2, 5, or 7 years. Even by putting as little as 10% of your paycheck every month.

It’s good to remind yourself that you don’t have to come from money to become a homeowner. Barely a few regular people bought houses in cash.

The best tip for saving money to buy a house is to avoid anything that pulls you away from this goal.
It can be people with a negative attitude towards your journey or habits that consume your time and money.

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