Dreaming of getting onto the property ladder? It's tougher than ever to make that first move, as the housing market is very much stacked against first time buyers in 2021. However, it's not impossible to make that first step, but you need to know how to save. Before you start hunting down the best mortgage lenders, you need to save up for that all-important down payment – which admittedly, isn’t always easy, particularly in the current climate with a lot of people struggling in the wake of the pandemic. But there are small steps you can take to start building your pot, so here, we take a look at how to save money for a house, bringing you one step closer to home ownership.
Know what you’re aiming for
Your first step is knowing what your end goal is – i.e., how much you’re going to need to set aside in order to afford the house you’re hoping for. This means taking a look at the current market to get a ballpark figure of house prices in your area, and from there, working out how much you’ll need to save towards a down payment.
Ideally, you’ll want to aim for 20% of the purchase price, as this will mean you’ll be eligible for better mortgage rates and will be able to avoid private mortgage insurance. Yet you’ll also need to consider the mortgage you can actually afford, which will mean spending time going through your finances to get a realistic idea of your options, and perhaps seeking out credit repair services to help you stand a better chance of securing lower mortgage rates.
Don’t forget about the other costs that go into homeownership too, such as homeowners insurance, estate agent fees, inspections and maintenance costs, not to mention the cost of truck rental services for the move itself. Make sure to factor these into your initial calculations and add them to your down payment to get the total amount you need to save, just to make sure there aren’t any unexpected costs later down the line.
Cut your expenses
From there you’ll need to start looking for ways to build your pot, and one of the best things you can do is analyze your budget and see if there are any areas you can cut back on. Start by looking at your subscriptions to see if any can be culled, and be honest with yourself – when was the last time you went to the gym? Do you really need all those streaming services? Are those magazine subscriptions really worth it? Try to limit your luxuries and see if you can cut back on your monthly grocery bills, too, and when it’s time to renew your various insurances, always shop around to see if you can get a cheaper rate.
Cutting back may seem an impossible task at first glance, but even small tweaks here and there can add up over the long term. Getting a complete overview of your finances so you can see where your money is really going can help, which is where personal finance software can come into its own.
Reduce your debt
It may seem counterintuitive to pay down your debt when you’re trying to save, but bear with me. By reducing your debt, you’re lowering the amount of money spent on repayments each month, which could be put into your house fund instead. It’ll help your debt-to-income (DTI) ratio as well, which can be crucial when it comes to the mortgage you could be eligible for. Lenders will look at your DTI ratio as part of their overall affordability assessment, and a lower score means you’re more likely to be offered a lower mortgage rate – so paying down your debt could pay off in the long-run, too.
Start by considering which debt to pay off first, and you may want to look at debt consolidation if you’ve got several loans or credit cards to deal with. Consolidating everything into a single loan could mean you’re able to streamline your repayment schedule and, ideally, will be able to benefit from a lower interest rate, which could reduce your repayments and mean you’ve already got more to set aside each month. Find the best debt consolidation companies to see if it’s an option.
Could you get a side job? A hobby you could make money out of? Sell some of your stuff you no longer need (which, as an added bonus, means less to pack for the move)? Any one of these options could be a great way to add some extra cash to your housing fund, and with a recent survey showing that Americans have netted an average of $1,810 by selling household items online this past year, it could prove lucrative, too.
Once you get into the swing of things and know how much you can realistically save, switch things up by putting that amount into your savings account as soon as you get paid, rather than waiting until the end of the month to see what’s left over (though if you can add anything extra at any point, go ahead!). You could even step it up a notch by saving as if you were already in your new home – if your future housing costs are likely to be higher than your current rental outgoings, put the difference straight into your savings. Not only will you be saving more towards your home, but you’ll be getting used to the extra expenditure that can come with it, so it won’t be such a shock when the time comes.
Then there’s your tax refund. Firing up your tax software and working out what tax deductions you could be entitled to can help maximize the refund you could be due – the only question is what to spend it on once it’s back in your account. Well, if it isn’t needed elsewhere, stashing it away in your house fund could be your best bet, and could prove a sizeable boost to your pot.
Find the best savings rates
Of course, a key aspect is where to save all that money in the first place, which is where the right savings account can come in. Find the right one and, thanks to the magic of compounding, you could even reach your goal sooner, but that all hangs on having a high interest rate – which is why you’ll probably want to look online. That’s because online banks are known for having the best savings rates, largely thanks to their minimal overheads, which means they can pass on any extra savings to their customers. Opting for an online savings account could even offer a dual purpose, particularly if it’s with a separate provider to your main checking account, as it’ll keep your funds out of arm’s reach so you won’t be so easily tempted to spend it.
Saving enough money for a house can seem overwhelming at first, but there are things you can do to achieve your goal. You may be willing to go even further in order to meet your ambitions, such as moving somewhere cheaper to rent until you’ve saved up enough, or moving in with friends or relatives for a few months to kick-start things. Yet even smaller changes can make a big difference, and the sooner you start, the sooner you’ll be able to realize your dream of homeownership.