Are you struggling to figure out how to save money for a house? The dream of purchasing one’s own home is a major milestone for many people; according to a survey by Zillow, nearly 94% of people want to own their own home, now or someday, if money didn’t get in the way. Unfortunately, money does, indeed, pose a significant hurdle. I know this well: I was $20,000 in debt when I decided to make changes and save up for a down payment on my home in a year. Here’s how I did it!
My Real Life Down Payment Savings Plan
The first step to serious savings is to figure out where in your budget you can trim to be able to afford to save that same money. For me, a big part was moving into a small apartment with $600 rent (including utilities); the leftover cash I had been spending went straight into my savings! Granted, this apartment was in an old hospital that had been turned into a furniture warehouse, so there were creepy elements, but the saved money was well worth an unusual setting for a little while.
I reminded myself that I was living in a smaller space now to be able to afford a house in the future. Consider the areas of your life where the expenses are a little high right now and consider cutting them. A big source of surprisingly high expenses is monthly services, including things like rent. If you can split your internet with a friend in the apartment upstairs, or cancel cable television, or telecommute to work one day a week to cut gas costs, you are getting those savings every month, and they add up!
While it seems hard at first, making extra money can actually have a double effect: not only do you take home bigger paychecks, but you also have less time to be bored and possibly spend money. I work shifts, so whenever overtime was available, I took the time offered and socked away the extra money. There are also ways in which cutting an expense can be like saving money.
Rather than paying a pet sitter, I worked with a friend to take care of the other person’s dog. She was grateful, given that she was working shift work like me, and my sweet dog Bella was thankful for the company too. After all, when working overtime, something sometimes has to give, and I wanted to make sure that it wasn’t my number one fan making the sacrifice; her care is important to me.
Budget, Budget, Budget!
Making a budget feels restrictive, but the money you save by knowing where every dollar is going is so valuable. When I made a budget, I was able to cut back on all my other living expenses. I knew that my food budget was limited, so I cut back on eating out to stay on budget. It’s not so bad if you keep track of what you spend and shop the sales.
I also took the time to look for cheaper insurance, which will keep saving me money for years to come. By allocating every dollar, I knew that anything I earned above that threshold went straight into my savings. You’ll find that, once you start saving money, the feeling is so good that you’ll want to find other ways to increase your savings.
These three steps, together, helped me get from $20,000 in debt to a $20,000 saved down payment for a house. However, to make that money stretch as far as I could, I took two further steps in the home buying process to make sure that all my scrimping and overtime were worth the effort.
Online, you can find mortgage calculators that will help you know how much monthly payments on a home will be; also I had to take into account things like property taxes and insurance. I took my time and shopped around for home insurance. I wanted my price range to truly reflect the money I had available and what I was comfortable paying.
Doing this ahead of time saves you years of stress, trying to make payments that are too high. I chose a fixer-upper to keep those house payments low, knowing that I could make improvements that would increase the home’s value when I had the money to do so.
Find the Right Lender
Closing costs and interest rates have a long-term effect on your house cost; according to MoneyUnder30, even 1% difference in the interest rate on a typical home loan can equate to a $100 difference in a mortgage. I called different financial institutions in my hometown specifically to get their current interest rates and average closing costs. Ultimately, a local credit union was my best option with both rates and closing costs.
As you begin the process of getting ready for homeownership, take the important steps I took. I maximized my income, minimized my monthly expenses, and set a budget. Once I was approaching my down payment goal, I picked a house that fit my budget. You, too, can find places in your budget that can be changed so that you can buy a home. Don’t let debt be a barrier to you. There are ways you can increase income, cut expenses, and choose a home that is right for your budget.
Have more questions about the homeownership journey? Let me know in the comments below!