For most Americans (or Canadians, or Brits — hello there!!), the biggest purchase we’ll ever make is our house. Unfortunately, many homeowners find themselves waking up to a nightmare after committing to their home mortgage. Want to know how to start saving for a house, the smart way? Read on...
My husband and I took the plunge and began building our cozy home in the woods very shortly after getting married. As a side note, I’m contemplating naming our home. Do you think that “Bairnstowe Cottage” is too pretentious???
We were jazzed to be participating in the home-buying process and were excited to see our new house being built. Excited, that was, until it came time to sign the loan paperwork at the title company…
The immense size of the monetary numbers shown on the page diminished our excitement — hundreds of thousands of dollars??!
Don’t get me wrong, our home was (and is!) a blessing. I’m grateful for our comfortable house and the special-to-our-hearts builder who helped make it happen. However, in hindsight, I wish that we had saved up a little more, waited a bit longer, and put more money down. Those small changes would have dramatically increased our down payment and reduced the mortgage amount. I wish we had known how to start saving for a house the smart way!
If you’re a to-be-homeowner looking to make a purchase, I hope you’ll take my story to heart. It’s not so tough to wait a bit more, be patient, and reap the rewards of a smaller loan.It's not so tough to wait a bit more, be patient, and reap the rewards of a smaller loan Click To Tweet
If that describes you (hello, future homeowner!), here are some awesome ideas that will help you learn how to start saving for a house:
How large of a downpayment do you need?
In order to save up for a downpayment, your first question should be, “How much money do I need?” Let me encourage you here to resist the urge to run down to your local loan company and ask to be prequalified for a loan.
Prequalification from a bank is a really bad idea.
Let me tell you why mortgage companies came up with the idea of pre qualification. They did it to get more money out of YOU!! Imagine the following water-cooler conversation between two fictitious loan officers:
“Hey there, George. How’s business?”
“Well, Helen, it’s pretty slow. How about you?”
“Me too, George. Awfully slow day in the home loans department. But get this, I’ve got a fantastic idea. What if we trick people into thinking that they need to come into our office before they go home shopping? What if we convince them that they can’t do basic math?”
“Helen, that’s brilliant! We should lure them into the office with a promise of making complex calculations about their income and expenses. Then, we’ll convince them that they can get an even bigger loan than they’d otherwise consider!”
Think I’m just being ridiculous? Not true! I can prove it right now. Let’s virtually “prequalify” you.
Follow these 4 Steps to determine the appropriate home cost for your family:
- Plan to save up a down payment of at least 20% of your home price. Doing so will save you the monthly cost of mortgage insurance ($100+) that loan companies require to protect themselves from riskier loans.
- Look up the current estimated mortgage rate based on your loan length.
- Use this handy mortgage qualification calculator to determine an appropriate home cost. Begin with an estimated down payment (make a guess of 20% of your ideal home price) and adjust until the recommendation fits your budget. Take note of these two numbers that you’ve just calculated (according to your budget): home cost, and downpayment. Crown.org recommends a conservative maximum (i.e., you won’t be stressed to the max and regret your house purchase in ten years) of 38% of your budget go towards housing, including utilities. Don’t go above this amount! Granite countertops and the latest-and-greatest soaking tub are not worth the headache that comes with overspending on your home! Granite countertops and the latest-and-greatest soaking tub are not worth the headache Click To Tweet
- Keep this optimal down payment amount in mind when following through on the money saving steps below! Want to know how to start saving for a house? This down payment is your savings goal. Now, let’s continue on to your action steps- here’s where “the rubber meets the road” 😉
Start with a custom-fit budget
A great budget is the absolute best tool that you can pack in your toolkit when considering how to start saving for a house. A contractor wouldn’t start building your house without basic tools, and you shouldn’t start saving for your house without a firm foundation (pun intended!) in place. A contractor wouldn't start building your house without basic tools, and you shouldn't either Click To Tweet
It’s impossible to start your house-saving journey without first getting insight into your spending habits. A well-crafted budget gives both insight and control of your finances back to you and your family. Hooray!
Resources to help you develop a custom-fit budget:
- Budgeting Basics – Answers the question, “What is a budget?”, and, “How do I create a budget?” Plus, five tips to get you started on the right track.
- Don’t forget ninja expenses in your budget!
- Consider using an envelope budgeting system – the easiest way to get a handle on budgeting.
Trying to save money for a house while carrying an existing mountain of debt is like tackling Everest with no sherpa… or crampons… or rope… or carabiners… you get the idea. Not only is carrying debt into a mortgage unwise (all your money is already being handed over to creditors!), but it’s also unhealthy. Debt breeds stress, and stress gives birth to strife. No, thank you.
How to start saving for a house by eliminating debt:
- Get a grip on debt with this debt worksheet, and find your inspiration and passion to succeed in digging out of debt.
- Be inspired by stories of other families climbing out of debt, I know that I am! This story shares how one family paid off nearly $30k in debt over the course of six months.
- Find extra money to pay down debt with one of these simple steps from a mom of two (she’s tried them all!)
Trim your expenses like crazy
Next, it’s important to take a good hard look at that custom budget and see if there are any expenses that can be trimmed.
Every additional dollar that is put toward your home down payment will return exponential rewards in the future. Those rewards are in the form of decreased interest and increased investment value, a.k.a., your new home.
Don’t think of this step as a burden, but rather an opportunity to build a better financial future for your family. Turning frugality into a game might sound silly, but it makes a huge difference in whether or not the goal of saving money adds stress to your family.
Our family mantra this year as we push hard to pay off our mortgage is to “question every purchase”. You’ll not find me dumpster diving or frying up roadkill for dinner, but you better believe that I’ll be using coupons when possible and buying discount gift cards for the occasional dinner out.
Yes, you can borrow our mantra if you want to 🙂
Resources for trimming expenses:
- These are the 3 easiest money saving ideas I’ve discovered that offer the biggest bang for your buck.
- Whittling down the grocery budget is a common way to save on expenses. Here’s a giant list of ways to save money on groceries.
- Revamp your family’s entertainment spending with my favorite way to save money on movies.
- The best way to save money on expenses is just to avoid purchases altogether. However, real life dictates some shopping in your future. This article offers great tips for getting the best deal on purchases (on Black Friday or any day).
- When it comes to clothing, thrift shopping is the way to go. When you don’t have the time or energy to drag your family to the local thrift store, this online thrift shop offers a great alternative. It’s my new favorite way to save money on clothing for my family!
- Cutting the cost of healthcare can make a HUGE difference in your budget. This step takes a little more time, but is well worth it to help you find more money for a larger downpayment.
Seek out encouragement
Trying to save money for a house downpayment is a big undertaking. In fact, it’s the largest debt that most families will take on in their lifetime. It’s important to deliberately make small changes (like those above) that will add up to huge savings over the lifetime of your mortgage.
Seeking out encouragement while accomplishing the goal of saving up for a house will make all the difference. Are you interested in how to start saving for a house, successfully?
Here’s an important step towards success that many families fail to consider: Do you have any friends that are committed to making healthy financial decisions? Let them know about your goal of saving for a house downpayment. Cheer one another on as you both race toward the goal of a better financial future.
Online resources take a back seat to real life friendships, but here are some great options for finding additional encouragement when the real-life variety is scarce:
- Did you know that (by the grace of God) my family is months away from paying off our mortgage? Five kiddos, both of us under 40, and we’re thrilled to be here. Last year I wrote a popular article about how we are paying off our house 10 years early. I’d encourage you to check out this free course If you’re interested in doing the same thing. This free resource explains our mind set and how we’re accomplishing this crazy goal of changing our financial future.
- Listen to the Dave Ramsey show for tons of great advice and inspiration from families across the country that are making healthy financial decisions.
- Or, read the book, The Total Money Makeover for a great way to get fired up about your new goal of saving for a house.
Bonus: Take advantage of First Time Homebuyer’s programs
Though not an action step in the process of discovering how to start saving for a house, this is a very important piece of advice to follow. The chances are good that you can qualify for a First Time Homebuyer’s program if this is your first home purchase.
These programs offer a reduced mortgage interest rate in exchange for a few hours of your time sitting in an informational class. Thousands of dollars in exchange for some desk time? That’s a no brainer.
I would have loved to take advantage of one of these programs. Instead, my husband and I (we were much younger and more trusting– that’s my completely embarrassing excuse) were duped into taking on a shoddy mortgage product with a terrible rate.
As in, nearly two percent higher than the going rate on a 30 year mortgage, terrible.
Maybe that’s why I’m so passionate about the topic of mortgage debt! Don’t make the same naive mistakes that I did. Please make sure that you’re getting a good mortgage product. Take advantage of any opportunity to lower your rate. Make sure that you’re saving for a home the smart way.
Find out more information about First Time Homebuyer’s and similar programs:
- Discover a first time homebuyer’s program in your area through the US Department of Housing and Urban Development (HUD) portal.
- Not sure if you qualify for a first time homebuyer program? This article might help.
- Special programs to help lower the cost of home ownership are also available for many other groups, including military veterans (through Veterans Affairs home loans, teachers, law enforcement officers, and EMTs (through HUD’s Good Neighbor program) and American Indian or Alaska Native citizens (through the Indian Home Loan Guarantee program).
How to start saving for a house, the smart way
Home ownership is a worthy goal. Don’t let the dream of owning your own home turn into a mortgage nightmare by taking on more debt than is wise. Don't let the dream of owning a home turn into a nightmare by taking on more debt than is wise Click To Tweet
I’m thankful that my family didn’t take on a gigantic mortgage, but I wish that I had the foresight to save up a little more, wait a bit longer, and put more money towards a downpayment. Then I could have been mortgage free even sooner!
Want to know how to start saving for a house the smart way? Carefully budget, eliminate debt, trim expenses, and seek out encouragement. With those actions in hand you’ll have a giant downpayment in no time …and now owning your home will be a blessing instead of a nightmare.
What are your tips for how to start saving for a house? Do you own your own home, or are are you beginning the journey? Or, maybe you’re quite content as a renter? Share your thoughts, I’d love to hear from you!
*FYI, the links on this page may contain an affiliate kickback (if you buy at these great prices I’ll get a small cut at no cost to you). Thank you for helping support Loving Littles!
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