How to save money for buying a house

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It’s among the biggest investments you’ll ever make. Here’s how to save up for it

by Ashley Franklin

May 31, 2023 | Money

Buying a house is one of the most significant investments you’ll ever make. According to Forbes, the median price for existing homes in April of 2023 was $375,700 — an amount that many people don’t have readily available.

With the right plan and dedication, though, it’s possible to save enough money to purchase a home. It takes careful planning and smart budgeting, but it’s worth it when you can make your dream of owning a house come true.

As we explore some tips for how to save money for a house, you should also consider interest rates, the pros and cons of home ownership, and the cost of owning a home.

6 tips for saving money

Before discussing home ownership specifics, let’s look at some financial planning tips for saving money.

1. Assess your financial situation

It’s best to have a realistic idea of your financial situation before you begin saving money in earnest. Fortunately, this assessment is easy to do. Start by reviewing your income and expenses, and set a budget that includes an amount you can put aside each month. Consider any debts or loans you have, and find ways to reduce them as much as possible. Once you know how much money you can save monthly, planning will be easier.

2. Open a dedicated savings account

Establishing a dedicated savings account is one of the best things you can do to prepare for buying a house. This way, your funds are separated from other accounts, and you can track your progress more easily.

3. Automate your savings

When setting up a savings plan, automate it as much as possible to ensure you are consistent with your monthly contributions and don’t miss any payments. You can set up automatic transfers from your paycheck or bank account every month, so you can stay on track and reach your goal even if you’re not thinking about it.

4. Consider other sources of income

If you think it’ll help you to supplement your income with additional earning sources, consider investing in stocks or rental properties that could generate additional funds. You can also take on a side hustle, or consider selling clothing or furniture you no longer want or need.

5. Reduce your expenses

One of the best and most effective ways to save money is to reduce your expenses. Every little bit counts, so try to cut down on non-essential purchases, such as eating out or entertainment.

6. Consider tax benefits

Depending on where you live, there may be tax incentives for homebuyers. Take the time to research what tax benefits are available at the state and federal levels, which could help you save even more money when buying a house.

How much money should you save for a house?

There’s no hard rule for how much money you should be saving up for your new home. It’ll depend on factors like the down payment, closing costs, the property’s price, and your existing savings. It also depends on your housing needs (how many bedrooms? do you want a yard?) and where you want to live.

Depending on what kind of loan you get, you may need to pay between 5% and 20% of the total cost of the house at closing. According to Unison’s Affordability Report, it will take most Americans 14 years to save for a 20% down payment on a median-priced home if they make the national median income. So while homeownership may seem far away, you can make it happen with a plan in place and a commitment to saving.

Also, consider the cost of owning property beyond the initial down payment. You should budget for ongoing expenses like mortgage payments, taxes, maintenance, and homeowners’ insurance costs. Remember these when setting your savings goal and create a plan for all these factors.

Once you know what kind of loan you need, how much money you can save monthly, and all associated costs, you can determine how much you need to save for a house.

Understanding mortgage interest rates

When you’re ready to buy a home, it’s important to understand mortgage interest rates. The lower the rate, the lower the cost of the money you’re borrowing to buy a house. (Yes, sometimes even money costs money.)

Shop around and compare offers from different lenders to find the best option for your needs.

It can also help to follow economic trends and federal policies that may affect mortgage rates. Stay informed and adjust your savings plan in response to market changes. For example, if inflation is high or the Federal Reserve raises interest rates, mortgage rates also tend to rise.

But what influences your personal mortgage interest rate when you apply for a loan? Various factors, including your credit score and the type of loan, play a role in determining what rate you will qualify for.

You can use strategies like making a larger down payment or opting for a shorter loan term to help secure a lower rate. Another way to secure a lower rate is by increasing your credit score, if at all possible.

Pros and cons of home ownership

Owning a home can be an excellent investment with many benefits. It can also come with challenges, so it is critical to weigh the pros and cons before committing to such a large purchase.

Let’s look at some of the advantages and disadvantages of home ownership.

The pros:

Homeownership builds equity over time.You can customize your property to meet your needs.It comes with greater stability because you won’t have to worry about rent increases, or an owner deciding to stop renting out the property.You can benefit from certain tax deductions.

The cons:

Maintenance and repair costs can be expensive.You may face restrictions on what you can do with your property (depending on its location and whether it’s part of a homeowners association).There are transaction costs associated with buying and selling a home, such as closing costs, appraisals, and real estate commissions.

Frequently asked questions

What do I need to buy a house?

To buy a house, you must have enough money saved up for a down payment and closing costs, secure financing in the form of a loan or mortgage, and meet all legal requirements associated with home ownership. Additional steps may be necessary to complete the purchase, depending on where you live.

Are there tax benefits associated with home ownership?

Yes! Homeowners can benefit from certain tax deductions, such as a deduction on mortgage interest payments or property taxes. Check with a tax professional to find out more about what deductions are available in your area.

Is now a good time to buy a house?

It depends on your individual situation. If you have saved up enough for a down payment, and have a steady source of income, now might be a good time for such a large purchase.

It also depends on the real estate market. Housing prices are no longer skyrocketing, but inventory is still tight. (Translation: Limited supply, slightly lower demand, which means houses are still expensive, but not as much as they were a short time ago.)

And it also depends on the cost of borrowing money. Mortgage rates are higher today than they were for much of the 2010s (and into the 2020s), but lower than they were in the 1990s. Predicting what rates will do going forward is not for the faint of heart.

Let Haven Life secure your future

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Our editorial policy

Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

Our disclosures

Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.

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It’s among the biggest investments you’ll ever make. Here’s how to save up for it

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