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Buying a home can be expensive, but that doesn’t mean it’s an entirely out-of-reach goal — regardless of what your income might be. Really, it’s just a matter of saving and spending carefully.
If you’re hoping to become a homeowner soon, here’s how to save for a house:
- Know what costs to expect
- Understand what you can afford
- Pay down debt
- Automate it
- Find areas for temporary cutbacks
- Have a dedicated savings account
1. Know what costs to expect
The first step is to understand what costs you’re facing as a homebuyer. Sure, there’s the down payment and closing costs to worry about, but there are also several other costs.
Here’s a quick look at the typical expenses you can expect when buying a house:
|Closing costs||2% to 5% of your home’s purchase price|
|Min. down payment||FHA loan: 3.5% of purchase price
Conventional loan: 3%
VA loan: $0
USDA loan: $0
|Moving costs||Local: $550 to $2,000
Long distance: $2,000 to $7,500
|Emergency reserves||2 to 12 months of mortgage payments, homeowners insurance, taxes, and other costs in case you lose income|
|Inspection fee||$300 to $500|
|Property taxes||Varies by location|
|Homeowners insurance||$828 to $1,498 per year on average|
|Mortgage insurance||FHA loan: 1.75% of your loan balance upfront and 0.45% to 1.05% annually
Conventional loan: $30 to $70 per month for every $100,000 borrowed
|HOA dues||$200 to $300
|Maintenance and repairs||$1,105
2. Understand what you can afford
You also need to know how much house you can afford — both on a monthly basis, as well as annually. Monthly costs will include your mortgage payment and utility costs, for example, while annual costs will likely be repairs, maintenance, property taxes, and HOA dues. Keep in mind, though, that if you use a mortgage to buy your home, your lender might collect property taxes and HOA dues in the monthly payment to hold in the escrow account.
Learn More: How to Know If You Should Buy a House
3. Pay down debt
If you have a lot of debt, paying it down could really help your savings efforts — especially if they carry high interest rates.
Think of it this way: The more interest you’re paying, the less money you have to save. If you reduce some of that interest you’re paying by getting rid of debt, you’ll save more cash to put toward your dream home. Plus, a lower DTI could help you secure a lower interest rate and afford a more expensive house if that’s your goal.
4. Automate it
Set up regular automatic deposits into your savings fund, and make sure you’re contributing regularly to your efforts. You can set up recurring deposits once a week, once a month, or even after every payday. You can also talk to your employer about depositing a portion of your paycheck directly into your savings account if they’ll let you.
5. Find areas for temporary cutbacks
If you can reduce your expenses anywhere, you should — even if it’s only temporary. Can you do without that HBO or Netflix subscription for a few months? What about lowering your grocery bill? Could cooking more at home instead of eating out so much save you some extra cash each month?
If you cut back in your budget in any way, you can put the savings there toward your new home.
6. Have a dedicated savings account
Finally, make sure you’ve established a separate savings account for your goals. Don’t put designated homebuying money in your checking account, and avoid depositing it into a saving account you have easy access to. You want to avoid dipping into that fund at all costs.
Find more ways to lower costs
If buying a house still seems like a pipe dream, you might try reducing your expected homebuying costs if possible. Here are some ideas:
- Assistance programs: Down payment assistance programs help reduce (or cover) your down payment or closing costs. Eligibility is usually based on income.
- Negotiation: There’s actually a lot you can negotiate for during the homebuying process. Consider negotiating with the seller or inspector, or think about asking your real estate agent for a rebate on their commission.
- Shop around: Always shop around for your mortgage loan, as lenders offer widely varied rates and terms. There should also be a section on your loan estimate titled “services you can shop for.” Comparison-shop for these items, too, and make sure you’re getting the lowest rates.
Find Out: How to Get a Mortgage Pre-Approval
If you’re ready to start shopping around for a mortgage, Credible Operations, Inc. can help. Filling out our form takes just a few minutes and then you can compare multiple lenders to find the right fit for you.