How to Save Money for a House
Buying a home is the single biggest purchase many families ever make. And in today's overheated housing market, with sale prices skyrocketing and some buyers coming to the table with all-cash offers, landing a home is no easy task. It's a reality that can make saving the money for such a purchase even more challenging.
But that's no reason to lose hope. There continue to be countless success stories of families closing on a home, including single parents and single-income households, despite the extreme market competitiveness.
If a new home is on your family's to-do list for 2022 or beyond, one of the first steps to realizing that dream is saving money for the down payment. Here are some of the ways to effectively set aside cash for your home-buying savings fund—while also juggling the demands of a family budget.
Get rid of extraneous and discretionary expenses
First things first. More than a few finance experts suggest carefully reviewing your family's current monthly spending and eliminating any extraneous or discretionary expenses when you're trying to save a substantial amount of money for a home purchase. The low-hanging fruit here is almost always monthly subscription expenses.
A recent J.D. Power survey found that Americans now subscribe to four streaming services, on average. This is up from three streaming services prior to the COVID pandemic. What's more, consumers are spending about 24 percent more on these services. On average, consumers spent about $47 per month on subscriptions in December 2020, which is up from $38 in April of the same year.
- Related: The Family Home-Buying Guide
"One area of spending that's often overlooked is streaming and subscription services," Michael Cummins, money saving expert and director of finance for Insurance Geek, tells Parents. "Consider cycling through streaming services on a seasonal basis and prioritize based on series releases. For example, consider paying for three months of Amazon Prime, three months of Disney+, and so on."
Those who also subscribe to such services as Audible, YouTube Music and Spotify, might consider implementing a similar cycle based on your current listening habits.
"This can sound complicated, but with a few reminders on your phone's calendar, you can cut your $35 streaming bill in half, saving over $200," adds Cummins. "It may not sound like much, but that's 2 percent of the average U.S. down payment."
You may also want to consider forgoing some of the more expensive discretionary spending for a while—things like fancy clothes and luxury vacations. And finally, don't overlook the money your family may spend on dining out.
"If you're eating out twice a week, cut that down to once a week or even less," Jessica Chase, loan and finance expert with Premier Title Loans tells Parents. "All the big and little things can add up, and will eat into your house savings, so everything matters."
Decrease essential bills
Once you've tackled the discretionary expenses, it's time to turn your attention to essential bills—items you can't eliminate entirely but may be able to reduce somewhat. Think: car insurance, home insurance, utility bills, and the like.
"Take 30 minutes out of your weekend to shop around and see if your utility providers, banks, and more are offering you the best rates possible, and make a few changes where possible," Scott Nelson, CEO of MoneyNerd Limited, tells Parents.
- Related: Is It Better to Buy or Rent a Home?
Also, consider shrinking your grocery spend by frequenting cheaper stores—and don't snub dollar stores and thrift shops, adds Nelson.
"Again, this is a huge but easy hack that growing families can use to shrink their monthly bills and pour the savings straight into their house fund," adds Nelson.
Downsize big-ticket lifestyle expenses
Scaling back subscriptions and shopping around for discounts on essential monthly costs are all part of an even bigger task when saving for a home purchase—and that task can be summed up as downsizing or living below your means.
"Downsizing is one of the best methods to save for a down payment on a house," Michael Simons, real estate broker and owner of Tres Amigos Realty Group, tells Parents. "You effectively cut the amount you pay for expenses and put the additional money in a savings account when you downsize."
Simmons and other experts suggest taking the downsizing much further than simply eliminating subscriptions. They advocate looking around at some of your more significant expenses as well and finding ways to do away with them.
"Families can downsize by selling one extra vehicle or relocating to a more economical area," suggests Simons.
Budget your money
Of course, it's nearly impossible to pursue an important financial goal without establishing a budget that allows you to track all family income and earmark money for expenses, to ensure you're not spending wastefully or impulsively, and that you're staying on target with your financial goals from month to month.
"When you're on a tight budget and raising a family while saving for a house, you can't afford to spend money on a whim," says Simons. "Plan your buying ahead of time by creating a monthly budget or spending plan. Approaching your expenditures with a budget in place decreases the danger of overspending because you already have money set aside for each category."
Take advantage of behavioral changes brought about by the pandemic
As hard as it may be to fathom, there were indeed a few positive outcomes from the pandemic. The years of lockdown taught many of us to live more simply—and in the process, spend less. Try to continue this approach to living simply (at least on some level) when you're working toward setting aside money for a new home.
"While this won't apply to every family, many workers now commute less frequently or not at all. Even with rising gas prices, there's a decent chance you're spending less on gas than you were two years ago," says Chris Motola, financial analyst for Merchant Maverick. "Commuting costs are substantial, so roll the money you're not spending on being stuck in traffic into your down payment fund."
Find new ways to generate income
In addition to reducing expenses, it's also a good idea to identify new ways to increase your income in order to reach your savings goal more quickly for a new home.
"What about a part-time job? Getting something temporary in the evenings or weekends can quickly build up those savings and may even prevent you spending money at the same time," Gary Oxborough, director at Go 2 Mortgages, tells Parents.
Yet another way to generate additional income may be to look at unwanted or unused items around the house that can be sold. "There are so many websites that you can use to get rid of unwanted items and, if you're anything like me, there will be plenty of stuff in the garage or spare bedroom that's just collecting dust," continues Oxborough. "This could add a nice boost to your savings efforts."
Consumer finance expert Andrea Woroch also advocates family members taking on a side hustle to help achieve savings goals more quickly and effectively.
"No matter how much you cut back, you may not have much flexibility to save more," says Woroch. "There are lots of flexible side hustle you can do in your spare time to make money and boost your savings."
Some of the options Woroch suggests include taking paid surveys on the platform Inbox Dollars, or joining a virtual focus group through join2020panel.com. Still more options include pet walking and pet sitting, which can easily be done on nights and weekends, or throughout the week if you work from home. Those who offer pet sitting and walking services through sites like Rover can easily make an extra $1,000 a month, says Woroch.
"All of these are hassle-free ways to earn some extra cash that can boost your savings fund," says Woroch.
Set-up automatic transfers to your savings account
With all the money you'll be earning from side hustles and saving from eliminated subscriptions and decreased spending on gas, it's time to start ensuring you're setting the money aside in the right place. You can do this by creating regular monthly transfers to a savings account.
"Set up automated monthly contributions to your savings. If you don't see it, you don't spend it," Guadalupe Sanchez, founder of Budgeting in Blue, tells Parents. "It's similar to the money deducted from your paycheck for taxes, health care, and retirement plan contributions. These required expenses are deducted automatically, and you only spend the remaining amount. That's the idea of automating your savings: You don't think about the money being withdrawn from your checking account; it just happens."
Open a new savings account
Speaking of automating your savings, when you're saving for a significant expense, it's also a good idea to open a dedicated savings account that only contains money for your home down payment.
"It's important to separate the money from your existing savings account for two main reasons," says Sanchez. "One, you'll always know the balance and how much you have left to save in order to reach your goal. Second, if you keep all of your savings in one account, you'll be more tempted to use the money for something else.
Sanchez also recommends opening that new savings account at an entirely different bank. "If you keep your new savings account separate from your existing accounts, you'll be less tempted to transfer money to your checking account to cover other expenses," she explains.
When researching new savings accounts, consider selecting a high-yield account that offers more significant interest, in order to help your money accumulate faster. Many of these types of accounts are online-only, meaning they have no brick-and-mortar locations. The savings from not having a physical bank branch presence in your community is passed on to consumers in the form of higher interest rates.
"Saving money in your regular bank is a good first step, but you can make that money work a lot harder for you in a high-yield savings account," Kari Lorz, a certified financial education instructor and founder of Money for the Mamas, tells Parents. "A typical savings account at a bank has a 0.01 percent APY, and in one year you wouldn't even earn enough to buy a regular coffee. Yet if you put that money in a 0.50 percent APY high yield account, you can earn considerably more on interest. On a $20,000 balance, that would mean earning $2 at your regular bank versus $100 in a high-yield account."
Look into down payment assistance
In addition to saving as much money as your family can manage, you should also research down payment assistance programs, which can make reaching your home-buying goal more manageable. There are many assistance programs across the country offered by local governments, banks, and various economic support agencies.
"New home buyers might not be aware that there are many assistance programs that can reduce the amount you have to save for your down payment and closing costs," Maggie Overholt, lead editor at The Mortgage Reports, tells Parents. Down payment assistance programs are available in every state as well as in many cities, counties, and communities. These programs can offer a dollar amount or percentage of the home price toward your down payment—often as a grant or forgivable loan that doesn't have to be repaid after a few years."
It is worth exploring assistance options even if you're still months or years away from being ready to buy. Being familiar with your assistance options can help determine how much your family really needs to save—which may be less than you think.
Hang up a picture of your dream house
This final tip is less about how to save money each month and more about staying on track with your efforts. Make sure your financial and home-buying goals are always top of mind so that you don't fall prey to frivolous spending.
"It's very easy to get distracted from your bigger goals each day. When that happens, people's money can go where they don't think about it going," Scott Alan Turner of Rock Star Financial Planning tells Parents. "Find a picture of your dream home and plaster it everywhere. On your bathroom mirror, on the wallpaper of your computer and mobile phone, on your refrigerator. Keep this constant reminder at the front of you, and you'll be more likely to make smart decisions that get you to your dream home faster."