The first step in saving for a home is to come up with a target savings amount. For most mortgages, you’ll need to come up with a down payment. This could be anywhere from 5% to 20% of the purchase price. Keep in mind, though, that if you choose to put less than 20% down at closing, you may need to pay for private mortgage insurance. This protects the lender should you default on your loan. Though having a 20% down payment will save you money over time, it’s not a requirement to buy a home.

In addition to saving up enough for your down payment, you’ll also need to factor in closing costs, which can run between 2% and 5% of the home price, as well as moving costs (which, depending on how much stuff you have, could run into the four figures).

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11 Tips on Saving for a House

Once you know how much money you need to buy a home, you’ll want to take a strategic and multipronged approach to saving. Here are some ideas you may want to try.

1. Scrutinize Your Spending

One way to start savings for a house is to simply start spending less. And, it may not be as painful as you think. 

To start, scan the last three months of banking and credit card statements and make a list of your nonessential spending. You may immediately see expenses you can eliminate, such as a streaming service you no longer watch or a gym membership you rarely use. You may also uncover other places to save. Is it time to cut the cable cord? Could you cook one or two times more per week instead of ordering take-out? Any money you free up can go toward your home saving fund. 

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2. Start a Side Gig

A good way to save for a home faster is to find some new sources of income. You might consider picking up some freelance work within your own profession, or turning one of your skill sets (like photography, writing, website design, social media marketing) into a source of cash. Other ways to pick up extra money include: 

• Working for a ride-sharing or food delivery app
• Walking dogs in your neighborhood
• Babysitting
• Pet-sitting
• Doing lawn work
• Selling artwork or crafts
• Selling gently worn or unused clothing

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3. Ask for a Raise

If you’re living paycheck to paycheck and believe your contributions at work merit a raise, it can be well worth your while to ask for one. 

To up your odds of success, you’ll want to gather and present any performance data and results from projects you’ve worked on to your boss. It can also help to be positive and upbeat as you present your case. For example, you might let your manager know that you see yourself growing with your company and that you’re excited to take on more responsibilities. If an immediate raise isn’t available, ask what you can do to get a salary increase in the future.

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4. Find a Better Paying Job

If you’re not being compensated competitively for your work and haven’t had luck with getting a raise, you may want to take a look around for other opportunities in your field. Sometimes switching companies can be the only way to get a significant increase in pay. You might start by browsing job sites, networking with friends and former colleagues, and talking to a recruiter.  

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5. Pay Off Debts

While this may seem counter-productive when you’re actually trying to save, putting extra income toward debt repayment can improve your debt-to-income ratio (DTI). Why is that important? 

When you apply for a mortgage, lenders will look closely at your DTI. Generally, the more debt you have when you apply for a mortgage, the more risk you present to the lender. This can translate into paying more in interest and having to come up with a higher down payment. As a result, now may be a good time to assess what you owe on your credit cards, student loans, and auto loans, and create a plan to tackle it.

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6. Consider Downsizing

If your rent is taking up a big chunk out of your paycheck and you’re having a hard time saving, you might consider making a move. While you might not love the idea of moving to a smaller place or less desirable neighborhood, doing so could help you save a significant chunk of money each month. This is money you can then divert to your home savings fund, which will allow you to upgrade to your own home sooner rather than later.

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7. Take a Staycation

Instead of jetting off to an exciting destination for your next vacation, consider staying or sticking close to home. You can then put the money you would have spent on that vacation in your home savings fund. You can still have fun by exploring local sites. You’ll likely also enjoy knowing that the thousands you would have spent going away is going to an excellent cause — buying your own home.  

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8. Avoid Lifestyle Inflation

If you recently got a raise or a new job, it can be easy to slip into lifestyle inflation which is when your spending increases as your income grows. If your goal is to save for a house, you’ll want to resist this urge. Consider sticking with your usual spending and lifestyle habits and setting aside the pay increase (at least temporarily) for your down payment fund.

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9. Put a Temporary Brake on Retirement Contributions

If you’re young and contributing a portion of your paycheck toward retirement, one way to save money for a house is to (temporarily) stop or reduce your retirement fund efforts and divert that money to your home sayings fund. This can make a big difference in how quickly you can save for a house. However, the key is to make sure this is just a short-term strategy.

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10. Take Advantage of Windfalls

If you receive a lump sum of cash — such as a cash gift, bonus at work, inheritance, tax refund, or raffle/lottery winnings — consider putting the money right into your house fund instead of your checking account. This can significantly reduce how much time it will take to reach your savings goal. It can also increase your motivation to save as you see homeownership getting closer in sight.

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11. Automate Your Efforts

Another key tip for anyone saving for a house is to automate your savings. Manually setting aside money for your down payment is just another item on your to-do list that can easily get forgotten or delayed. Consider setting up a recurring transfer from your checking to your savings account for the same day each month (perhaps on the day your paycheck clears). This way, you won’t be tempted to spend the money, and your home fund will keep growing without any extra effort on your part. 

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Where to Park Your Savings for a House

As you start saving for a home, consider opening a dedicated “house savings” account that earns a higher annual percentage yield (APY) than a traditional savings or checking account. This will help your money grow faster. Some good options include:

A high-yield savings account Often found at online-only banks, these accounts can pay as much as 25 times the national average rate on standard savings accounts. Like other types of savings accounts, high-yield savings accounts are federally insured and typically limit you to six withdrawals per month.

Money market account These accounts pay a higher-than-average APY and provide some of the conveniences of a checking account, such as checks or a debit card. Money market accounts often come with higher balance requirements than other savings accounts in order to avoid fees. These accounts are federally insured and often impose a six-per-month withdrawal limit.

Certificate of Deposit (CD) CDs offer competitive APYs but don’t allow you to access your money for the term (or length) of the CD, which can range from three months to five years. Like other savings accounts, the money you put in a CD is federally insured.

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The Takeaway

A house is often the largest purchase many of us will ever make. If you want to save up enough cash to make a down payment (and cover other initial expenses), it’s a good idea to start well in advance, and to take a multi-pronged approach that includes cutting your spending and increasing your earnings. You can then divert any cash you free up or gain into a separate savings account that is earmarked for buying a home.

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

 

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
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Communication of SoFi Wealth LLC an SEC Registered Investment Adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov. Liz Young is a Registered Representative of SoFi Securities and Investment Advisor Representative of SoFi Wealth. Her ADV 2B is available at www.sofi.com/legal/adv.

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