How to Save for a House: A Step-by-Step Guide

Getting started on saving for a house is a huge milestone for many Americans – buying a home is part of the American dream, after all! However, with rising home prices and other financial responsibilities, it can be challenging to build up enough for a down payment. Whether you’re a first-time homebuyer or just getting back into the market, the process can feel overwhelming. But with the right strategies and a clear plan, you can make steady progress toward homeownership. In this article, we’ll explore practical tips and tools to help you when saving for a house and reaching your financial goals.

Set a Savings Goal

The first step on the essential Checklist for First-Time Home Buyers is to consider how much you need to save. Start by researching home prices in the area you want to buy. This will give you a ballpark figure for how much your future home might cost. Make sure you explore several neighborhoods; their prices could vary significantly. Next, determine the down payment requirements. Typically, lenders expect between 3% and 20% of the home's purchase price, depending on the type of mortgage.

It’s also important to factor in additional costs like closing fees, home inspections, and moving expenses for an accurate budget. Once you have an idea of your target home price, down payment amount, and additional costs, you can set an accurate savings goal and timeline to help you stay focused and motivated.

How to Create a Savings Goal for a House

Before learning how to save for a house, you'll need to have a realistic goal in mind. Learn how to create a savings goal as the first step of the process.

Research Home Prices

• Look up the average home prices in the area.
• Choose a realistic price range based on your needs, income, and market trends.
• Read our blog, How Much Home You Can Afford, to get started.

Determine Your Down Payment

• Identify the percentage your lender requires (usually between 3% and 20%).
• Multiply this percentage by your estimated home price to find your down payment amount.

Factor in Additional Costs

• Include expenses like closing costs (between 2% and 5% of the home's price), home inspections, and moving fees.
• Add these to your down payment to get the total savings goal.

Set a Target Date

• Decide when you want to buy your home.
• Divide your total savings goal by the number of months until your target date to determine how much you should save each month.

Track Your Progress

• Use a spreadsheet or savings app to monitor how much you’re saving.
• Adjust your plan as needed to stay on track toward your goal.

Budgeting Strategies

To reach your savings goal, you’ll need a solid budget that helps you set aside money consistently. Cutting unnecessary expenses, forming smart saving habits, and increasing your income (if possible) are all great strategies to get you started.

Cutting Expenses

Identify areas where you can cut back to free up more money for your home fund.

• Review monthly spending: Analyze where your money goes each month and identify non-essential items. For example, you may spend $200 on takeout that could be redirected to savings.
• Eliminate unnecessary subscriptions: Cancel services or memberships you don’t use regularly. Consider canceling one streaming service and saving an extra $10 to $15 monthly.
• Cook at home: Reduce dining out by planning and preparing meals at home. You could save $7 to $30 per meal by cooking at home,
• Buy generic brands: Opt for store brands instead of name brands to save on groceries and household items. Switching to generic brands could save you $2 to $3 per item. Shop at bargain outlets and watch for sales.
• Limit entertainment spending: Look for free or low-cost alternatives, like local events or outdoor activities. Free local events are also a great way to get involved in your community.

Increasing Income

Boosting your income can accelerate your savings and help you reach your goal faster. Whether it’s taking on a side job or selling unused items, extra earnings can make a big difference.

• Take on side gigs: Use your skills for freelance work or part-time jobs to earn extra money. Driving for rideshare services could bring in an extra $200 to $400 a month.
• Sell unused items: Declutter your home and sell items you no longer need through online marketplaces or a yard sale. Selling old furniture or electronics could earn you several hundred dollars.
• Ask for a raise: Do some research, bring your data, and request a salary increase at your current job to boost your income. A 5% raise on a $50,000 salary adds $2,500 a year.
• Monetize hobbies: Turn hobbies like crafting, baking, or photography into small-business opportunities. Photography and art can make lucrative side business opportunities.

Consistent Savings Habits

Building consistent saving habits ensures steady progress toward your home goal. By automating transfers and tracking your budget, you can make saving easier and more reliable.

• Set up automatic transfers: Schedule automatic transfers to your savings account each payday to make saving effortless. Check if your bank has a "keep the change" program to round up purchases into your savings account.
• Save a percentage of income: Start by saving 10% to 20% of your income each month and increase over time if possible. If you earn $4,000 a month, saving 15% would add $600 to your home savings.
• Track spending: Use budgeting apps or spreadsheets to monitor your spending and savings progress. Try planning your weekly menu around which items at the store are on sale.
• Create a “no-spend” day: Dedicate one day a week to not spending any money to help reinforce saving habits. For an extra challenge, try a no-spend week or even a month.
• Do you need that?: Get in the habit of asking yourself if the item you are about to buy is a “need” or a “want.” If you don’t need it, save the money until you truly do. Some people even put online purchases in their cart, but don’t buy immediately, to cut back on impulse buying. Then check back in a week – do you still need it?

Saving Tools and Resources

Several tools and resources can help you grow your savings faster and stay on track toward your homebuying goal. By using the right accounts and savings strategies, you can maximize your efforts and make your money work harder for you.

High-Yield Savings Accounts

• Better interest rates: These accounts offer higher interest rates than traditional savings accounts, helping your money grow faster.
• Easy access: They still provide liquidity, so you can access your funds when needed without penalties.
• FDIC-insured: Most are insured up to $250,000, making them a safe place to store your savings. Investment Options
• Certificates of deposit (CDs): CDs typically offer higher interest rates in exchange for locking your money away for a set period, making them a good option for short-term savings.
• Low-risk bonds: Bonds offer modest returns with low risk, which can help you grow your savings steadily.
• Robo-advisors: Automated investment platforms can manage low-risk portfolios tailored to your timeline and risk tolerance. Automated Savings Plans
• Automatic transfers: Set up automatic transfers from your checking account to your savings account each month to ensure you’re consistently saving.
• Round-up apps: Use apps that round up your everyday purchases to the nearest dollar and save the extra change.
• Payroll deductions: Some employers allow you to direct a portion of your paycheck directly into a separate savings account, making saving effortless.

Related: View other Homebuying Tips.

Overcoming Obstacles when Saving for a House

Saving for a house isn’t always a smooth process. Unexpected challenges, like debt and surprise expenses, can throw you off track. Tackling these problems can help you stay on track.

Dealing with Debt

• Prioritize high-interest debt: Pay off credit cards or loans with the highest interest rates first to free up more cash for saving.
• Debt consolidation: Consider consolidating multiple debts into a single, lower-interest payment, which can make managing debt easier and more affordable. (Be sure to ask how this will affect your credit score, as many debt consolidation plans require you to close accounts, and make sure the debt consolidation agency is a nonprofit.)
• Create a repayment plan: Set a timeline to pay off your debt while still setting aside money for your home savings.

Managing Unexpected Expenses

• Build an emergency fund: Save at least three to six months’ worth of living expenses to cover emergencies without dipping into your home savings.
• Adjust your savings plan: If an emergency arises, temporarily reduce your home savings contributions until you’re back on your feet.
• Cut costs elsewhere: If faced with unexpected costs, find areas in your budget where you can trim expenses to stay on track.

Staying Motivated

• Visualize your future home: Keep a clear picture of your dream home in mind to stay motivated and remind yourself why you’re saving.
• Set mini goals: Break your savings goal into smaller milestones and celebrate when you reach each one.
• Track your progress: Use apps or a simple spreadsheet to monitor your savings growth and keep yourself accountable.

By addressing these common challenges, you’ll be better prepared to stay on track and continue building your savings, even when life throws you a curveball.

For Peace of Mind, Consider a Home Warranty

Saving for a house can seem overwhelming, but you can make steady progress toward homeownership with a clear goal, a solid budget, and the right tools. By cutting expenses, increasing your income, and using savings accounts and investment options, you’ll be well on your way to reaching your target.

As you work toward owning your dream home, don’t forget to plan for ongoing costs, like home maintenance and repairs. A First American real estate warranty can provide peace of mind by covering repairs and replacements on major systems and appliances, helping you protect the investment you worked so hard to buy. Consider adding our home warranty coverage to your homebuying plan to help with long-term cost savings and confidence that your home budget is protected. Get a quote today.

FAQs About Saving for a House

How Much Should You Save Before Buying a House?

You should save 3 to 20% of a home’s purchase price for a down payment. For example, a $300,000 home would require $9,000 to $60,000, depending on the loan type. Also, budget 2 to 5% for closing costs and additional expenses like moving.

What Is the Best Way to Save for a House?

The best way to save for a house is to set a clear savings goal, create a budget to cut unnecessary expenses, and use a high-yield savings account. Setting up automatic transfers and finding side gigs for extra income – or improving your skills for a higher-paying position – can also speed up your savings.

How Many Years Does it Take to Save Money for a House?

It typically takes two to five years to save for a house, depending on your savings goal, home prices, and how much you can set aside each month.

How Much to Save Per Month for a House?

To calculate how much to save per month, divide your total savings goal by the number of months until you plan to buy. For example, to save $40,000 over three years (36 months) you’ll need to set aside about $1,100 each month.

The contents of this article are provided for general guidance only. First American Home Warranty does not assume any responsibility for losses or damages as a result of using this information.