How to save for a house?
This is probably one of the biggest financial milestones that every family wants to achieve. Maybe you’ve found a place everyone loves. It’s close to work in a good school district and you don’t know how to afford it.
Or even better you are trying to figure out how to get into real estate investing and still have issues saving up the downpayment. It happens, even to rich people!
Sadly, a lot of people are having trouble with this next big move, but luckily, I have a formula. I’ve done this a lot and it makes for an easy way to save up your downpayment. Other expenses associated with buying a house like closing costs and property taxes, you can worry about later.
And before I jump into it. Really think about why you want to be buying that house.
- Should I buy a house now? You should ask yourself before you move
- Homeownership isn’t all it’s cracked up to be (although I love rentals)
- A lot of people aren’t careful and end up house poor.
- Consider what you’d do in a housing market crash
- Stay put and pay off your mortgage early? I’m not a huge fan but there are cases
I have saved up and bought seven different houses. I have this down to a science… or math.
The formula isn’t anywhere as complicated as you’d think it would be. You don’t need to go to some business school just to get this. Millionaires do it ALL THE TIME.
Average Joes like me did it too. It’s what allowed me to write posts like this with awesome memes as a hobby. Literally, it’s just motivation + other financial stuff = welcome to your new home!
Unless you’re going for a huge upgrade, you don’t have to worry about your mortgage, homeowner’s insurance, or property taxes either. Think of it as paying rent to the most awesome landlord who lets you do whatever you want. (That’s you!)
So just focus on the down payment. And it’s not as hard as you think. Here’s why:
1 – The 20% down payment is a huge load of stinking donkey doo doo. You’ll have to pay for private mortgage insurance (PMI), but you can get a home with less. If you qualify for a USDA or VA loan, you don’t even need a downpayment!
2 – Your credit score can do the smooth-talking for you. No need to stage how sad the whole family is because they can’t afford a downpayment. If you have a great credit score, your lender will be open to you having less.
3 – You probably have some money saved up already. Bonus points if it’s in a high yield savings account! You’re not starting from zero so you should be fine.
Read more about real estate:
House Hacking. The Fastest Way to Get Into Real Estate Investing
Get into Passive Real Estate Investing
How to save for a house? Getting your downpayment!
I’m not saying the entire thing would be effortless. If it is, everyone would’ve bought a bunch of houses already. Closing costs would also run in the thousands of dollars, so that’s something you prepare for too.
Here are a few things to help you with the downpayment:
1 – Get pumped!
You should feel excited about having your first home because it’s a huge step. You’re basically committing to living in the same place forever so you better be as excited as you were on your wedding day.
My suggestion? Pack your stuff and be ready to move. Make it real!
If you’re getting your stuff in boxes, you’ll work harder to get out of your apartment ASAP. All you’ll be thinking about is how bad it is to unpack everything if you take too long to move out. Trust me, you don’t want that.
2 – Be super stingy
I’ve said it before, and I’ll say it again: saving is the only way you can get out of a financial rut. And the only way you can save quickly is by spending as little as possible. You can get a 100% return on your investment. But does that really mean anything if you only have $1,000 to invest?
If you’re doing it to save up for a house, you don’t have to do it forever. Just until you’ve saved up enough for your down payment.
What you’ll learn about yourself is going to be priceless, though. You’ll find out what you truly value and can’t live without.
Now, does this mean you should live with the ultimate bare minimum? Not if it’s going to make you lose your sanity!
If a tub of ice cream gives you a handle on your trauma from accidentally high-fiving a stranger, go for it! Therapy’s more expensive anyway.
But you’ll be surprised how satisfied you still are despite cutting back!
3 – Follow some super simple investing
And by simple, I mean 15 minutes simple. Index investing yields an average of 9% every year. Plus, the fees are much lower so you get to keep more of your money.
To start, just open an account with an online brokerage, and buy some index funds. I usually keep it at around 70% stocks and 30% bonds, but if you’re a little more conservative, you can have more bonds.
That’s it. You’re an investor!
By sticking with something super simple, you can save your energy by finding out more ways you can cut your budget or even by getting a side gig.
4 – Be bold! Be shameless!
Yes, I know. You’re all grown up, and you want to be independent. You didn’t work so hard just to beg money from your parents again. But you must do everything to get to your day 1 as a homeowner more quickly.
No, this isn’t me endorsing something illegal like selling scalped Comic-Con tickets to Scarlet Johannson’s biggest fan.
But you’ll have to be bold. If it means asking your family or your friends for a loan, do it. If it means having to move back in with your parents to save money, do it. If it means getting a side gig that you think is “beneath you”, do it.
Don’t let anything stop you in your quest for the keys to your first home!
Let’s go back to the basics, shall we? This is how you buy your first house in just a year.
You can learn how to save for a house by following the basics: earn, save, and invest. Really, that’s how I do it now:
STEP 1. Earn. As you know, I still work part-time to avoid early onset dementia or boredom… whichever comes first. That’s on top of my passive income from different investments like my high yield savings account, stocks, and real estate.
STEP 2. Save. Just don’t spend money as quickly as you make it. It’s not that hard to ignore that limited-time edition crap you’ll care about for five minutes before ignoring forever.
STEP 3. Invest. As soon as I have enough to buy a house, I buy one. That’s why my taxable investing account never gets above $80,000. For me, that’s all I need.
Here’s how it could work. Let’s say you and your partner who both earn $60,000 a year want to buy a house together before having a kid. You don’t want to have to potentially find a new apartment while in labor.
Following the federal income tax rates, you’ll have $102,020 after giving Uncle Sam what he’s owed. That’s what you’ll have to work with for the entire year. The average home price this year is $287,148. Let’s assume you’re going to get an average house.
If you’re going to go for the 20% down payment, you’ll need $57,429. This is pretty doable. The average rent for an apartment in the United States is $1,124 per month or $13,488 for the entire year.
Subtracting all of that from your after-tax income, you’d still have $31,103 left! That’s $2,592 per month to spend on everything else.
Will it be hard? Maybe, if you’re used to living a lavish lifestyle. But what’s one year of sacrifice if it means getting your first home? Other fees like closing costs, you can get from your savings or borrow from someone.
Again, you don’t actually need to put in a 20% down payment. If money’s tight, you can do 15% or even 10%.
With dedication and a solid plan, you’ll get there!
Research your options to see how much you need to buy your first home. Also, look out for subsidies that you may qualify for.
In your case, look out for first-time home buyer programs in your state. You may qualify for closing cost assistance and reduced interest rates on your first home.
To give you more funds to work with, you can also pick up a side gig. There are many ways to get your down payment together. Just keep your eye on the goal, and you’re golden.
How to buy a house FAQ
How much money should you save for a house?
The general rule is 20% of the total market value of the house because this gives you a competitive edge if there are other offers. But it’s also possible to get a mortgage with just a 3% down payment.
How can I save money for a house fast?
My best advice for how to save for a house fast is to earn the most you can while keeping your costs as low as possible. This could be anything from putting your savings in a high yield savings account to picking up an extra job while living an extremely frugal lifestyle.
What is the best way to save for a house?
If you’re worried about going the wrong way on how to save for a house, you can’t. For as long as you’re doing everything to maximize the gap between your income and expenses, you’re doing it right.