How to save for a house: Tips to fund your down payment and other costs

For many people, the first step to buying a home is saving up for the down payment. It might feel like a difficult goal when you start saving, even if you don't plan on buying any time soon. If you’re looking to kickstart that process, here are some tips that could help you start saving for your new home.

How much should I save for a house?

Knowing how much you need to save will help you create a focused plan for reaching your goal. To do this, you need to consider how much you can afford for your new home. Keep in mind that most people can qualify for a bigger mortgage than they can comfortably afford. Use a mortgage affordability calculator to help you determine what you could borrow, then speak with a home lending advisor to better understand what fits your budget. You may want to start saving for the following homebuying expenses as well:

• Down payment: While 20% may be one of the most common down payments, there could be lower down payment options available, depending on your lender and situation. Keep in mind that a higher down payment often means lower monthly payments, and you’ll pay less interest over the life of your loan. It can also help you avoid the extra expense of private mortgage insurance (PMI).
  
• Closing costs and fees Closing costs and fees: According to CNN, the national average closing cost ranges between 2%-6% of your loan amount in upfront closing costsec-mortgage-insurance. These costs may include homeowners insurance, appraisal fees, house title-related fees, and fees for attorneys and brokers, to name a few.  costs may include homeowners insurance, appraisal fees, house title-related fees, and fees for attorneys and brokers, to name a few.  
• Property taxes: While property taxes are generally included in closing costs, the actual cost will depend on how the taxes are prorated and divided between the buyer and the seller. This means if you buy the home on February 1, for example, you’ll be responsible for property taxes for 11 out of 12 months.
• Moving expenses: The cost of moving to a new home will vary depending on the distance and your belongings. Try to save for this process and shop around for the best rate possible.

By taking all these expenses into account, you'll likely have a better estimate of how much you'll need to save. 

Set a savings plan

Thinking about when you want to buy a home will help you start planning for how to save. Decide on a time frame and then break your savings amount down into monthly amounts. For instance, say you want to buy a home in five years and you need to save $60,000 for the down payment and other costs, you'd need to save $1,000 a month for five years ($60,000/60 months = $1,000 per month).

If that’s not doable, you may need to adjust your plans. You can explore decreasing your mortgage amount or ways to increase your income. Or you may want to adjust your timeline. If you were still looking at a $60,000 down payment and waited seven years to buy a house instead of five, you'd only need to save approximately $715 a month.

Everyone's financial goals and circumstances are different, so these are just suggestions. Having a monthly savings plan can help you focus your efforts and make your down payment goal more achievable. It can also help you make better decisions about what you can afford and a reasonable timeline for doing so.

Tips on how to save for a house

Once you’ve figured out the amount you need to save, you might want to explore these tips.

1. Pay down your debt

When you’re trying to save for a home, it may feel counterintuitive to spend money paying down debt. After all, shouldn't every extra penny be going into a savings account? Not necessarily. Paying down your debt can help with your home purchase in two ways:

• It's good for your credit score. Credit scores have a big impact when it comes to qualifying for a mortgage. The better your credit score, the lower your mortgage interest rate is likely to be. By paying down your debt, you can have a positive impact on your credit score. It shows lenders you’re responsible, and also that you’re able to cover your expenses.
• It can free up savings in the future. By paying down debt, you can gain some wiggle room in your monthly budget. The money you used to pay bills can now go directly into your savings account rather than paying interest on other debts, like credit cards. The bonus is that you won't notice the difference in your budget because the money was going out, anyway.

Paying down your debt can help you once you buy your home, too. The money you were spending can now go toward decorating and fixing up your new place.

2. Reduce your expenses

Now’s a great time to take a close look at your expenses and decide what you can do without for now so you can save for a home. Saving doesn't have to mean eliminating all your discretionary spending, but the more you cut back, the faster you'll reach your financial goal. Here are a few steps to reduce your expenses:

• Start by listing all your expenses, then look at where you could cut back. Consider everything, even an expense like rent. Could you move into a less expensive property or split the bills with a roommate? Maybe brew coffee at home instead of going to the local coffee shop?
• Take a close look at your monthly membership expenses. Do you need cable when you use streaming services most of the time? Or could you ditch the gym membership in favor of running local trails?

Only you can decide what you’re willing to live without while you work to save for your down payment. But remember, you won't be saving for a down payment forever. A few years without that subscription will feel worth it when you’re sitting in your new home.

3. Automate your savings

Saving for a down payment on your dream home can be a major financial goal, and automating your savings could be a great strategy to achieve it. By setting up automatic transfers from your paycheck to another account solely dedicated to your down payment, you can ensure that a portion of your income is consistently set aside for the future. This approach may help you build your down payment fund gradually and reduce the temptation to spend that money on other expenses.

4. Put "found" money to work

Found money is the money you earn that doesn't come from your monthly income. It's those unexpected windfalls that you don't factor into your budget. Things like tax refunds, cash gifts for birthdays or holidays, a bonus at work and rebate offers are all "found" money.

Instead of pocketing the money, put it toward paying down your debt or building up your savings. Even small amounts here and there can add up quickly over the years you are saving for your home.

For example, say you have a goal of saving $715 a month toward your new home. One month, you get a bonus at work of $500. Another month, you get a gift of $200 on your birthday. Then a $15 rebate shows up in the mail. Over a year, you'll have an extra month's worth of savings.

5. Cover yourself with an emergency fund

Plans are great, but life happens. Protect yourself and your savings by creating an emergency fund. Set aside some cash that you can dip into for unexpected expenses like car repairs or a medical emergency. You can use this money instead of paying with a high-interest credit card or pulling from your down payment funds. Once the emergency has been resolved, you can begin to build up your emergency fund to the same previous level.

6. Put savings somewhere you can earn more money

If you’re looking to earn more interest on your hard-earned money, consider opening a high-yield savings account. The interest rates on these types of accounts are higher than your average savings account, which, in turn, means your savings could go farther. With high-yield savings accounts — unlike with accounts where you invest in stocks or other securities — you don’t have the same risk of losing your principal. They’re also typically backed by the Federal Deposit Insurance Corporation (FDIC), which may provide an extra layer of security. According to the FDIC, the standard maximum deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership categoryec-mortgage-fdic.

7. Search for down payment assistance programs

Down payment assistance programs help homebuyers with upfront costs, which could reduce the amount of funds you’ll need to save. There are a few types of down payment assistance programs available to homebuyers, some of which are geared toward first-time homebuyers or low-income buyers.

• Loans: A loan is a sum of money borrowed from a financial institution, such as a bank or mortgage provider, to cover the cost of buying a home. The borrower agrees to repay the entire loan amount plus interest over a specified period of time. There are different types of loan products such as Federal Housing Administration (FHA) loans and Veterans Affairs (VA) loans.
• Grants: A grant is a financial assistance program provided by government agencies or non-profit organizations to help with the costs associated with purchasing a property. Unlike loans, grants do not need to be repaid. This can be a great resource especially for first-time homebuyers.
• Matched savings programs: According to the Federal Deposit Insurance Corporation (FDIC), Individual Development Accounts (IDASs) are matched savings accounts that help lower-income individuals and families save for a specific goal such as homeownershipec-mortgage-fdic-pdf. According to IRS-SLC Economic Wellbeing, the IDA program is a one-to-one (1:1) matched savings program, with up to $4,000 in matched savings, to help pay for a vehicle, home, small business costs, or post-secondary (after high school) educationec-mortgage-ida. Please note that Chase does not offer a matched savings program.

In summary

When you start saving for a home, you may feel like there’s a long way to go before you reach your goal. Having a savings plan and a solid understanding of ways to save efficiently might make your wait less stressful. Remember, while saving, to make sure you know all your mortgage options and keep an eye on interest rates. When you’re ready, talk to a Home Lending Advisor to see how they can help.

Saving for a house FAQs

1. How long does it take to save for a house?

The amount of time it takes to save for a house varies based on several factors, including the price of the home, your income and the market. If you have a fair amount of savings, it will likely take you less time than, say, if you are starting from scratch.

2. What is the fastest way to save money for a house?

There’s no real shortcut to saving money for a house, but you may be able to move the process along by creating a stringent budget, exploring down payment assistance programs or putting your savings into a high-yield savings account.

3. How much should I save for a house each month?

The amount you should save depends on the cost of the house, your income and your timeline. Speak to a home lending expert for help figuring out a savings plan.