How to Save for a House

How Much Money Do You Need to Buy a House?

The amount you'll need to save for a house really depends on where you want to live and the type of home you're looking to buy. These factors, as well as the home's square footage, condition and age influence the sale price and, in turn, how much you'll need for a down payment and closing costs. Below are the main expenses you'll need to save for when buying a home.

Down Payment

A down payment is the amount of the home's sale price you pay upfront. The rest is then financed through a mortgage (unless you're making an all-cash offer). Making a 20% down payment has long been the golden rule, but it can also be a barrier to homeownership.

Example: You'd need to save $80,000 to put a 20% down payment on a $400,000 home.

A 20% or higher down payment has its advantages, like a lower monthly payment and no mortgage insurance requirement. That said, it isn't a requirement for many mortgages. In fact, mortgages guaranteed by the Federal Housing Administration (FHA), Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) require low to zero down payments in many cases.

Here are the minimum down payment requirements based on loan type and which loans you may qualify for depending on your FICO^® Score^Θ and other factors:

Learn more: What Type of Mortgage Loan Is Best?

Closing Costs

Closing costs are made up of assorted fees and are typically paid upfront when finalizing the home sale. The good news is that some closing costs are negotiable. These costs generally range from 3% to 5% of the purchase price and include:

• Fees paid to the mortgage lender: These are fees associated with the loan itself, such as origination fees, discount points and mortgage insurance if you're required to purchase it.
• Payments to external service providers: That may include the home inspection fee, appraisal fee, title search services, title insurance premiums and real estate attorney's fees.
• Prepaid funds: A portion of your homeowners insurance premium and property taxes will likely be due at closing and put into an escrow account. You'll continue paying into this account with each monthly mortgage payment. When these bills come due, the lender will pay them on your behalf.

Moving Costs

Don't forget about the logistics of settling into a new home. Hiring movers typically costs anywhere from $882 to $2,567, according to HomeAdvisor. You might also run into these hidden moving costs:

• Packing materials
• Moving insurance
• Additional fees like heavy item charges and stair fees
• Moving truck rental and gas
• Storage fees
• Furnishing and decorating your new home

7 Ways to Save for a House

1. Review Your Budget

To determine how much you'll be able to save to buy a home, create or review your budget for a clear view of how much money you're bringing in and where it's going. Track your expenses to see if there are areas where you can cut back to put more toward your home purchase. Making a budget can help you feel more financially stable overall, but it's also an important strategy for finding the funds to save toward your down payment goal.

There are many different types of budget plans to choose from, so consider the various strategies and find a method that fits your style. Using a budgeting app can help you automate the process and track your spending on the go.

Learn more: How to Make a Budget

2. Set a Goal

Using your budget to know exactly how much you can save each month for a down payment and what you can afford in monthly payments, come up with a goal for how much you'd like to save. First, use the breakdown of costs above and do some research on home costs in your area to target how much you'll need to buy a house. Then, break up your goal into years and months.

Aim for a monthly savings target ambitious enough to help you progress toward your goal, but also realistic enough that you can stick with it over time. You could look into savings amounts based on your income for a sense of what might be realistic.

Once you've come up with a goal that works for you, set up automatic transfers to your home fund.

Learn more: How Much House Can I Afford Calculator

3. Put Your Savings in the Right Account

Coming up with the money to buy a home usually takes time. The following types of accounts can help you earn solid interest along the way.

• High-yield savings account: These tend to offer much higher yields than traditional savings accounts. Online banks are known for offering the best rates, but be on the lookout for fees.
• Certificate of deposit (CD): With most CDs, you're required to keep your money in the account for a predetermined amount of time. Once this period ends, you'll get back your initial investment plus any earned interest. Early withdrawal penalties usually apply, but that may not be a problem if you opt for a short-term CD.

Tip: Investment accounts can be a risky holding place if you're hoping to buy a home within the next few years. Potential market volatility could result in significant losses in the short term. Also avoid putting your down payment funds in a retirement account, which will likely result in a tax bill and 10% early withdrawal penalty if you take it out before age 59½.

4. Put Windfalls Toward Your Goal

When extra money comes your way, put those funds into your house savings account to speed up your progress toward your goal. For example, you could set aside work bonuses, tax refunds, inheritances, gifts and other cash windfalls.

Tip: If you receive a monetary gift for your home purchase, you'll need a gift letter stating that the funds you received are a personal gift and not a loan.

5. Increase Your Income

Finding ways to bring in more money can help you reach your goal faster. Brainstorm ways you may be able to earn extra money, such as:

• Negotiating a raise or asking for a one-time bonus if the timing's right
• Picking up a side hustle or a part-time job
• Selling items you no longer want or need online
• Finding freelance work using skills you already have

Learn more: Ways to Make Extra Money From Home

6. Reduce Your Expenses

Look for ways to reduce your expenses, and direct the money you save toward your goal. Here are some ways you might be able to free up funds:

• Canceling unused subscriptions
• Hunting for discounts and couponing
• Planning your meals in advance and avoiding eating out
• Looking for ways to cut transportation costs, such as walking or taking the bus
• Taking on a roommate
• Renting a more affordable home

7. Research Homebuying Assistance Programs

If you qualify, first-time homebuyer programs and down payment assistance programs can bring buying a home within reach by reducing the overall amount you'll need to save. Depending on what's available in your region, you may be able to find assistance in the form of:

• Mortgages with low down payment requirements
• Discounted mortgage rates or no-closing-costs loans
• Down payment assistance loans
• Grants to help pay for a down payment, closing costs or home repairs

Learn more: How to Buy a House

Frequently Asked Questions

The Bottom Line

If you're curious about how to save for a house, treat it like any other financial goal: Do your research, make a plan and then prioritize it. That might require you to make some trade-offs, but the end result may be well worth it. No matter your timeline, having strong credit can help you qualify for a mortgage with the best rate possible. Check your FICO^® Score for free with Experian to get started.