Buying a house is a major goal for couples across the United States. Homeownership allows you to build wealth and customize your living space. However, saving for a downpayment isn’t always easy. The median home price in 2023 reached $359,000. Even if a couple only needed a 5% down payment, they would need to save $17,950.
It might not be easy, but now is the time to start saving for a down payment so you can begin life together in your new home. Follow these steps to create a plan and set a budget so you can start manifesting your first house.
1. Set a Budget
The first step when saving for a house is to have a realistic number of how much money you need. It’s a common myth that you need to save 20% for a down payment. Some buyers can secure mortgage loans for as little as 3% down.
However, a 3% downpayment amount varies depending on where you want to buy. The median home price in Georgia falls around $389,500. However, the median home price in California is $793,600. A 3% down payment in Georgia is around $12,000 but 3% in California is nearly $24,000. These prices will also vary by city and even neighborhood.
Research the specific neighborhoods where you want to live. Get an idea of the price points of the houses you are interested in. This will give you a clear budget for how much you need to save.
2. Create a Timeline
Don’t get overwhelmed if you crunch the numbers and need to save a lot of money to buy in your desired area. You don’t have to come up with your down payment immediately. Estimate how far you are from your goal and set a reasonable timeline to save up.
For example, if you need to save around $12,000 to reach a down payment level you are confident in, you can set a goal to set aside $1,000 a month over a year or $500 a month over two years. Every couple is different and has their own budget limitations, so only you know what is a reasonable amount to save.
3. Start Early With Saving Money
Even if you don’t know what neighborhood you want to move to or even when you want to buy a house, you both can still take steps to save for a down payment to become homeowners in the future. The earlier you start saving money — even before getting married — the more time you have to build a substantial down payment.
Saving money early can include budgeting upfront other life expenses, like saving money for your wedding. You can intentionally purchase high-quality, but less costly engagement rings and wedding bands and instead put that money towards your down payment for a home. You also might decide to have a micro-wedding but a longer honeymoon instead, and put your savings toward your future home.
4. Carefully Select a Savings Account
As you start saving money, look for low-risk ways to make your money grow. For example, the national average interest growth for savings accounts is 0.47%, but a high-yield savings account can reach up to 5%. Even if you aren’t able to contribute to your down payment savings fund for a few months, the value of the money in the account will keep growing.
Shop around at different banks and local credit unions to find a savings account that works for you.
5. Take Care of Any Debt
Debt is expensive. Student loans, car payments, and credit cards all come with interest on unpaid debt. You could be paying hundreds of dollars in interest each month without actually lowering your principal. Before you start saving for a home, do your best to pay down your debt. This includes making extra payments whenever possible so you will pay less interest later.
Paying down your debt also makes your mortgage application more desirable to lenders. Focus on paying off your debt now so you have a better chance of qualifying for a mortgage loan.
6. Improve and Maintain Your Credit
Paying off your debt will create a ripple effect on your finances. You can improve your credit score over time, which will also help you earn favorable interest rates with lenders. Higher credit scores usually correlate to better loan terms because lenders view your application as less risky.
There are other ways to improve your credit even if you can’t pay off your debt. Regular payments build your credit history and can raise your score. You can also raise your score by keeping your utilization rate low — which is the percentage of the credit you used compared to your total score. Taking steps to improve your credit now will help you in the future.
7. Save Extra for Unforeseen Costs
Saving for a down payment is a great way to prepare for homeownership, but you might not be able to use all of your savings for this goal. Unexpected costs can crop up when you least want them, from medical bills to car accidents. You can use your savings to cover these costs and avoid debt, even if it takes a little longer to buy a home.
The median American savings account only has $1,200. If possible, try to save up a nest egg of three to six months’ salary to help you with unexpected financial trouble.
8. Pick up a Side Gig
If you’re worried about your ability to set aside money to buy a house, pick up a side hustle to bring in extra cash. Look into rideshare apps, weekend jobs, and remote work opportunities with flexible hours. Serving drinks at your favorite bar after work could be a fun way to make a few hundred dollars that supports your home-buying goals.
9. Try To Live Off of One Paycheck
Look at your and your partner’s income levels and brainstorm ways to lower your expenses so one paycheck can cover all of your monthly costs. With this plan, the other partner’s entire paycheck can go toward saving for the house.
This option will allow you to set aside more money so you can become homeowners sooner. However, you might have to cut out other expenses and live frugally during this time. Some couples avoid eating out and cancel their subscription services so they can save a little more each month.
10. Consider Setting a Meeting With a Housing Counselor
A housing counselor is an objective professional who guides people toward their homeownership goals. You don’t need to be a financial expert, these professionals can do that for you. A housing counselor will look at your down payment, debt, and housing goals to tell you if they are realistic. They can offer advice and will help you develop a plan to become a homeowner in the future.
11. Get Qualified for a Mortgage
When the time comes, start talking with lenders before you begin your home search. These financial experts will ask you questions about your finances and provide an estimate of how much they are willing to lend you. They can pre-qualify you for a mortgage, which allows you to start touring homes.
Pre-qualification is different from pre-approval. While pre-qualification is a ballpark estimate, pre-approval happens after you submit your financial documents to the lender — tax forms, pay stubs, and bank statements.
Getting pre-qualified can help you set a budget for the homes you tour. You won’t accidentally fall in love with a house that is too far out of your budget.
12. Find a Reliable Real Estate Agent
Now that you are ready to start looking at homes, you can search for a real estate agent in your area. Interview at least three agents to find one you trust. Ask questions about their experience, negotiation strategies, and communication preferences. You want to hire a Realtor who won’t push you into a house you don’t like and who can advocate for your needs.
Saving to buy a house is rarely a linear process. Some people save a few months and then pause to plan a wedding. Others reach their down payment goals but decide to wait until the market is more favorable to buyers. By following these steps, you can grow your savings and get the down payment you need to buy your first house.
