How to Save for a House

Imagine the moment when you can walk through the door of a home that's all yours. Understanding homebuying costs is essential to making that dream a reality. This article will guide you along the path of saving for a house, from setting aside money for a down payment and closing costs to preparing for home maintenance and other expenses.

Understanding the Costs of Buying a House

It’s important to understand the costs you’ll encounter during the homebuying process. Beyond the price of the home itself, there are additional amounts to factor into the total you can expect to pay.

Down Payment: This is a percentage of the home’s purchase price paid upfront. Typically, a down payment ranges from 3% to 20% but can vary based on the type of loan.
Closing Costs: Fees and expenses paid when you finalize your mortgage. Examples of closing costs are appraisal fees, origination fees, title insurance, and more. Closing costs generally range from 2% to 5% of the loan amount.
Property Taxes: As a homeowner, you'll be responsible for property taxes. The amount varies depending on location and the value of the home.
Homeowner’s Insurance: This is required to protect your property against damage and theft, and its cost varies by location, home value, and coverage level.
Maintenance and Repairs: Owning a home means being financially prepared for maintenance issues and unexpected repairs.

How to Budget for a Home Purchase

Setting a budget when you’re getting ready to buy a house will help create a clear path to homeownership. Knowing how much you can comfortably spend also empowers you to purchase your home with peace of mind.

Use a Monthly Payment Calculator: Get a clearer picture of your potential monthly payment by inputting your estimated home price, mortgage interest rate and other associated costs into our All-in Payment Calculator.
Watch Your Credit: As part of this preparation, track your credit score since it can impact your mortgage rates and possibly the cost of private mortgage insurance (PMI is typically required when a down payment is less than 20%). Aim to minimize credit card debt to better your financial outlook.
Establish Your Savings Goal: The total amount you need to save should ideally cover a down payment (typically ranging from 3% to 20% of the home's price) and closing costs (usually around 2-5% of the mortgage). Also, consider moving expenses and other costs that could come up, like homeowner's insurance and potential maintenance.
Stick to the Plan: Stay on track by dedicating a fixed percentage of your income to your house fund. You can also decide to save extra cash from holidays, birthdays, and work bonuses.

More Budgeting Tips

Achieving the goal of homeownership begins with smart budgeting. Here are some tips to help you start budgeting like a pro.

Track Expenses: Use an expense tracker to categorize spending and identify where you can cut back. Expense tracking can save you hundreds to even thousands of dollars.
Reduce Non-Essentials: Scale down discretionary spending. Try choosing home-cooked meals instead of dining out, canceling subscriptions you don’t really use, and challenging yourself to identify needs vs. wants before making a purchase.
Smart Spending: Use cash or a debit card to minimize credit card debt, keeping your financial situation in check for a future mortgage application.
Realistic Goals: Your savings goal should align with your income and lifestyle. Find a balance between your monthly spending and savings aspirations.

Remember, a clear understanding of your finances and dedication to your budget are crucial for a successful home purchasing process. When you’re ready to take the next step in your homebuying journey, use our mortgage calculator and learn more about the home financing process.