Saving for a house may seem like a daunting task — but it doesn’t have to be when you consider you may only have to put 3% down. Learn how to save for a house down payment in as little as a year here.
Many aspiring homeowners may be misled by the myth of needing to save for a 20% down payment, when in reality you may be able to get a conventional loan with as little as 3% down (this of course depends on your income and credit score), or even no down payment if you qualify for a USDA or VA loan.
When it comes to saving for a home and properly budgeting, the little things add up. For instance, now that it’s tax time, it may be enticing to spend your tax return or stimulus check as soon as it comes in — however, this is exactly the type of extra income you’ll want to be saving if you plan on buying a house in the next year.
Here are a few more tips to help you save for a house down payment in the next year.
Building Your ‘Save for a House’ Budget
Budgeting is essential when you’re saving for a house down payment. Before budgeting, it’s helpful to use an online calculator to figure out how much house you can afford in your area. Browsing houses in your area and what they’re selling for, as well as staying up to date on real estate trends and news are also great ways to inform your budgeting.
Using all of this information, set an approximate amount as a savings goal in a certain period of time, then divide the amount by the number of months you’re saving for. For instance, if you want to save up for a down payment in a year, you’d divide the determined amount by 12 to get the amount you’ll need to save each month to reach your goal on time.
The first step of budgeting is looking at where your money is going each month and defining which areas are necessary and which areas could be cut down. Take a look at your bank statements over the past year and assign categories to each expense like rent, utilities, gas, groceries, entertainment, and more, specifying each category as a want or a need. Then create your budget by assigning known amounts to the needed categories, and figuring out how much leftover money to delegate to the wanted categories while putting away money for a down payment.
A budgeting app or a banking app’s budgeting tool can help make this setup process quicker and easier, automatically track your budget moving forward, and alert you when you’re reaching monthly spend limits for certain categories. Whether you’re budgeting manually or using a tool, the most important thing to remember is to stick to your predetermined monthly down payment savings amount. Sometimes, aspiring homeowners may be attracted to other potential areas for spending their paycheck and get caught up in the mindset that savings are a nonessential expense, pushing back the fruition of their homeownership dreams. Setting budgets and sticking to them will help you achieve homeownership faster, and put you in a good financial position as a first-time homeowner.
Automating Your Savings
In order to save for a house successfully, you’ll need to combat those sudden impulses of spending the money budgeted for your future down payment elsewhere. Consider calling your bank and requesting that they automate your savings so a certain amount is transferred to a savings account each time you get paid. This is great because it makes that money less accessible to spend, forcing you to be a better saver.
Think of it like this: for permanent employees, an income tax is taken out of each paycheck you receive, but you likely count the post-tax amount as the true amount you get paid monthly, without considering the tax amount since it never actually lands in your account. This is especially true for those with automatic account deposits set up since the amount actually going into their account is probably what they pay the most attention to.
Automated savings are similar except instead of the money going away from you to be distributed elsewhere, the money is going toward your future home. Automating your savings, especially for those who have trouble saving, will help you to get into the mindset that your down payment savings are a necessary monthly expense by only letting you see and focus on the amount of money left in your checking account after savings are automatically taken out.
Cutting Out Bad Spending Habits
We all have at least one unnecessary spending habit, which is why saving for a house down payment in a year is a challenge that takes major self-discipline, thoughtfulness, and commitment. Your budgeting setup process should help you to identify which areas you spend the most money in, but you’ll also need to create a realistic, actionable plan you know you can stick to in order to reduce these costs or cut them out completely.
For instance, if you have an unhealthy habit of impulse buying, consider unsubscribing from marketing emails so you don’t see new items or discounts and feel like you’re missing out. If you like eating out a lot, try duplicate recipes at home for some of your favorite takeout meals. Although this isn’t necessarily an unhealthy spending habit, maybe consider swapping a bigger vacation with a staycation or a smaller trip this year to save more. It’s all about creating sustainable and healthy spending habits that you know you can stick to in the longer term and setting yourself up for saving success in as many ways as possible.
Seeking Opportunities for Extra Income
On the opposite end of the spectrum, you can choose to focus on making more money rather than solely putting your efforts toward saving. There’s a variety of ways to do this depending on your job and lifestyle, but we’ve compiled some ideas to get you started.
If you feel like you’re at the right point in your career and job, you may be able to ask your boss for a raise. In order to do this, remember that timing is everything when bringing up a salary conversation, approach your boss both kindly and confidently, and come prepared to back up your good work with performance data. If it’s not possible to receive a higher salary at your current job but you can’t imagine saving for a house on your current salary, perhaps consider searching for another job in your free time to see if you’re qualified for a position that better fits the bill.
Another option is to consider starting a side hustle. You could pick up some freelance work that matches your skills, pet sit or babysit, or drive for a ride-sharing company or food delivery app for example. You could also rent out your spare room or apartment when you’re away or not using it. Apps like Airbnb are excellent options for renting out a room or full apartment on your own schedule so it doesn’t interfere with your daily life.
CENTURY 21 Bolte Real Estate Can Help You Find a Great Home Within Your Budget
A licensed REALTOR® can help you find a home that blends the priorities of your style, vision, and budget once you save for a house. Contact CENTURY21 Bolte Real Estate today to partner with the trusted North Central Ohio partner that can help you find the house you want within the budget you have.