7 min read May 14, 2024

How to Save for a House? Save for the Down Payment

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Jason Joshi

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Editor
Edited By

Jason Joshi

Editor, Houzeo
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Jason is a passionate content editor working at Houzeo. He has an eye for detail and keeps himself updated with the recent trends in the real estate market. He also likes to travel and explore places.

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54% of first-time buyers save for a down payment. Many believe they have to pay 16% to 20%, but that’s not always true. For first-time buyers, it usually ranges from  6% to 7%. If you are looking to purchase a home, a down payment will be a crucial element in this journey.

When you save for this initial down payment, it results in better loan conditions and cheaper monthly payments. While a traditional down payment is ideal, there are ways to achieve homeownership even without one.

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👉 Facts on First-Time Home Buyers

  • The desire to purchase a home is a major motivator for saving. 41% of Gen Z save with this intention.
  • According to a poll, more than 58% of first-time purchasers made a down payment of less than 20% on a home.
  • Unmarried couples now make up more than 18% of first-time home buyers, a massive surge since 1985.

How Much Should You Save to Buy a House?

Determining how much you need to save is essential when preparing to buy a home. Here’s a breakdown to help you understand how much you should try to save for your next house purchase. 

  • Down Payment Requirements: Many lenders provide choices with fewer down payments than the 20% rule. 
  • Types & Options of Loans: The down payment requirements of various loan programs differ. For instance, while government-backed loans like FHA loans frequently need roughly 3.5% down, conventional house loans may just need 3%.
  • Special Loan Programs: Look into special loan programs that offer zero or little down payment options, such as those provided by the Department of Veterans Affairs (VA) or the U.S. Department of Agriculture (USDA).
  • Financial Aspects: Your credit score, income, and debt-to-income ratio may affect the down payment amount and loan eligibility.
  • Advice: Speak with a mortgage lender or financial expert to fully understand your alternatives. Choose the best down payment amount based on your unique situation and long-term financial objectives.

To afford a home, you should set a realistic spending limit to avoid a financial void. For that matter, you must figure out how much you can afford for your down payment. If you’re planning to buy in the coming days, the best option is to get your mortgage pre-approval done right.

Doing this will give you a clear picture of what you can afford. That way, you’ll not only have an idea about how much you need for a down payment but also understand your finances.

Other Costs to Consider While Saving for a Down Payment 

Apart from the down payment, you must also consider other costs while saving for your home. These costs are as important as your down payment because these are inevitable.

  • Closing Costs: Closing costs are the expenses that every buyer or seller incurs to finalize the real estate transaction. These charges usually range from 3-6% of the total loan amount.
  • Moving expenses: These are the costs included in the shifting process. Whether you hire movers and packers or do it yourself, you will have to spend.
  • Emergencies: You can not neglect having an emergency fund in your home. It is crucial for situations when something unexpected happens such as job loss or medical emergencies.

Is it Better to Pay for Off Debt or Save for a Down Payment?

Outstanding debt can lead to stress and unstable finances. Repaying debt should be a priority to lower financial difficulties and guarantee a more secure future.

When accepting loans, particularly house loans, lenders use credit scores to determine a borrower’s trustworthiness. Having a lot of debt might lower your credit score, making it more difficult to get approved for a loan with favorable conditions.

On the other hand, a better credit score can help you fetch an interest rate at a lower percentage. This can help you receive a larger loan to get your dream house. Thus, it is better to pay off debt initially than to save for a down payment. 

Tips on How to Save Money for a House

Saving money to buy a house is not an easy task. However, with the right tools and knowledge, anyone can sail through it. Here are the simple ways by which you can learn how to save up for a house:

1. Control Your Spending 

Cutting costs—especially in areas of luxury and convenience—is the best way to save for a house. Think about going less frequently to expensive cafes and fine dining establishments.

Reconsider how much you spend on luxuries like clothes and shoes. The idea is to make investments in useful and appreciating assets without being overly expensive.

2. Hold Off on Your Retirement Savings 

It is sensible to budget and set aside a portion of your monthly income for retirement. If you’re saving for a home as well, though, think about temporarily stopping your retirement contributions. Doing this will increase your housing savings more quickly.

You can resume putting that money toward your retirement account when you’ve moved into your new house. Borrowing money from your retirement account should be avoided since it can result in high taxes and early withdrawal penalties.

3. Take Advantage of Home Buyer Program 

There are many government-backed home buyer programs, such as FHA loans, VA loans, and USDA loans, providing home loans with lower down payments. These loans pose a lesser risk to a mortgage lender, allowing lenders to offer lower interest rates to borrowers.

4. Factor in Your Recurring Expenses

Groceries, utilities, and electricity bills are recurring expenses that burn your pocket consistently. You can use a budgeting app that will calculate your expenses altogether. Try cutting down your expenses after you categorize your expenses.

You must also downsize to save more money for a down payment. Moving into a smaller apartment, a more affordable area, or using public transport can help you factor in your recurring expenses.

5. Create a House Saving Plan

You must create a house-saving plan by making a realistic budget to determine how you will pocket enough cash for the down payment. For that matter, you must carefully examine the income and expenses.

Set aside a certain amount each month to save for a down payment. For consistency, consider automating transfers to a special savings account.

Bottom Line

If you are thinking about how to save money for a house, always remember that a down payment can add up to a substantial amount on the property you choose. However, don’t fall into the traps of a 20% myth downpayment. Keep yourself open to possibilities.

Instead, carry out thorough research and make a choice that suits your personal preferences and financial situation.

If you are looking for an affordable house, let Houzeo help you find the best one. We leverage technology by accurately valuing the property. We also compare home prices of similar properties under market conditions so that you can get the best deal.

We offer what’s best for buyers. Our stellar customer support team offers the best recommendations on how to save money on a house.

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FAQs

What is the 50-30-20 rule?

The 50-30-20 rule is a way to save money. It typically means putting half of your hard-earned money toward needs, 30% toward things you desire, and 20% toward savings. The savings category is important because it also includes money you will need to fulfill your future goals.

What is the 30-day rule?

If you are tempted to make an impulsive purchase, there is a way to work another way. Wait for thirty days before actually obtaining anything to add to your collection, which will help you avoid unnecessary costs.

How do you save for a house quickly?

Some of the advice on saving for a house includes: Changing bank savings accounts to increase the rate of interest at which you are earning presently, Lowering your expenses related to luxury and conveniences, Changing up your insurance by increasing your deductible, and Creating a passive income by doing freelancing or other gigs.

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