The dream of owning a home often comes with questions: How much should I save? What’s the best way to start?
Learning how to save for a house is a crucial first step to making that dream a reality. It goes beyond simply setting aside money — it requires a plan that works for both your lifestyle and goals. Here are some practical tips for this journey.
How much should I save for buying a house?
How much money to save for a house depends on several factors, including where you live, the size of house you’re looking at, and moving expenses — just to name a few. Knowing these costs and how to budget for them helps you set a clear savings goal as you make your way toward getting the keys.
Here are some of the main costs associated and how much you should save for each.
Down payment
The down payment is the upfront money you pay toward the price of the home. The bigger the down payment, the smaller your monthly mortgage payment will be. This amount usually falls between 0 and 20% of the purchase price. So, if you’re looking at a $300,000 home, you’ll need anywhere from $0 to $60,000 just for the down payment.
If you can’t make a 20% down payment, you’ll likely pay private mortgage insurance (PMI). PMI protects the lender from losing as much if the borrower (you) can’t pay your mortgage. This adds to your monthly payment.
But programs like FHA loans, VA loans, or USDA loans can help reduce the down payment you need, especially for first-time homebuyers, and they don’t require PMI. While these programs lower the initial cost of buying a home, they may still come with their own insurance requirements. For example, FHA loans require mortgage insurance premiums (MIP), USDA loans involve a guarantee fee, and although VA loans typically don’t require PMI, they may charge a funding fee.
Pro tip: Grow your savings faster by using a
high-yield savings account or money market account to earn interest on the money you’re saving for your house down payment.
2. Closing costs
After you’ve saved for the down payment, the next major cost is closing costs. These are fees you pay to finalize the deal for things like a home inspection, title insurance, and lender fees. These costs usually range from 3% to 6% of the purchase price. For the same $300,000 home, that’s an extra $9,000 to $18,000.
Ask your mortgage lender if there are any options for lowering these costs as a first-time homebuyer. Some programs, like closing cost assistance programs, FHA loans, and USDA loans, can help cover closing costs, so don’t be afraid to inquire.
3. Moving expenses
You’ve got the keys — now it’s time to move in. Whether you’re renting a truck and packing boxes yourself or hiring professional movers, moving expenses can add up. On average, you can expect to spend between
$880 and $2,570 on a local move.
How much do I need to save for a down payment?
When you start thinking about buying a house, the down payment is often one of the biggest hurdles you’ll face. While many people believe you need 20% saved up, the reality is you can buy a home with much less down, depending on the loan you choose. Here's a closer look at how much money you need to save for a house and how to plan for it.
How much is the average down payment on a house
The 20% down payment myth has been around for years, but it’s not necessarily the rule anymore. In fact, many first-time homebuyers can get a home with a down payment as low as
3% to 5%. For example, a 5% down payment on a $250,000 home would only require $12,500 — much more manageable than $50,000. And if you're looking into FHA loans, which the federal government backs, you may be able to secure a home with as little as 3.5% down.
The catch? Smaller down payments might come with PMI payments, which can add to your monthly expenses. While PMI isn’t always a dealbreaker, it’s something to factor in when considering how much you can afford in the long term.
What if I can’t save enough for a down payment?
If saving a large down payment feels overwhelming, here are some other ways to make homeownership possible:
Down payment assistance programs. Many states and local governments offer down payment assistance programs for first-time homebuyers. These programs can help you get into a home with little or no upfront cost. Check with your local housing authority to see if you qualify.
Gift money. If you have family members who can help, you may be able to use gift money for your down payment. Just make sure to get a gift letter to document it for your lender.
Zero down payment loans. Certain loan types, such as VA loans for veterans and active-duty service members, offer the opportunity to buy a home with zero down.
Some USDA loans for rural homebuyers also offer 100% financing, meaning you wouldn’t need a down payment at all.
How long does it take to save for a house down payment?
The time it takes to save for a down payment largely depends on where you live, your income, and how much you can put aside each month. In regions with higher home prices, such as major cities, it may take longer to save compared to more affordable areas.
For example, if you aim for a 5% down payment on a $300,000 home, you'll need to save $15,000. If you can save $500 a month, it would take about 30 months or 2.5 years. On the other hand, if you're in a less expensive area with homes around $150,000, your down payment goal might be $7,500, which could take only about 15 months with the same savings rate.
The key to getting there faster is setting a realistic savings goal and adjusting your budget to prioritize saving for your home. Keep in mind that living in a higher-cost area may also mean higher monthly mortgage payments, so plan accordingly.
The 7 steps to save for a house
Saving for a home might feel overwhelming, but breaking it down into manageable steps makes it more achievable. The best way to save for a house is to start early, automate your savings, and cut back where you can. Every extra dollar counts — whether it’s from extra income or cutting back on non-essential expenses. By sticking to your plan and being consistent, you’ll be ready for the next chapter in your home purchase journey sooner than you think.
Here are seven simple steps on how to save for a down payment, bringing you closer to your dream of homeownership.
1. Set clear goals
First, decide how much you want to save and set a deadline for buying your house. Research home prices in your area to understand how much you’ll need for a down payment. Do you want a two or a three bedroom house? Are you looking for a condo in a building with amenities? Is it important to live near good schools?
Consider any options available to help you with a down payment. If you’re aiming for a 15% down payment instead of 20%, you’re striving for a different number. The clearer you are about your goal, the easier it will be to stay focused and motivated.
Make sure you’re realistic about what you can afford. If your dream house would take you 20 years to afford, it might be worth choosing where you can compromise to find something cheaper. Different locations or sizes can make a big difference in price tags.
2. Assess your current financial situation
Take a look at your income, debt, and savings. Knowing where you stand financially helps you figure out how much you can realistically save each month. If you’re
unable to save much right now, don’t worry. You can make a plan to cut back on expenses once you know where you’re at.
3. Create and stick to a budget
Once you know where your money is going, it’s time to make a plan.
Budgeting helps you see exactly where you can cut unnecessary expenses. One practical approach is using a
zero-based budget, where you prepare your budget from scratch each month, starting from zero. This method ensures that every expense — whether for savings, bills, or discretionary spending — is accounted for.
Alongside this, you can try the
cash envelope system to manage certain categories like groceries, entertainment, and dining out. By setting a specific amount of cash for each category, you ensure that once the cash runs out, the spending stops. Together, these methods can help you make the most of your money and save for a down payment faster.
4. Track your spending
Monitor
where your money is going each month. Download a
budgeting app or track everything in a notebook or spreadsheet. Small, seemingly insignificant purchases can add up fast. By being mindful of your spending, you can make sure more of your income goes toward your savings account for your house down payment.
5. Boost your income
If you can’t save as much as you want with your current income, consider finding ways to bring in extra cash. Could you
take on a side gig or freelance work, or do you have
unused items that you can sell? A little extra income can make a big difference and help you reach your savings goal faster.
6. Look into down payment assistance programs
If the thought of saving for a down payment still feels overwhelming, check out down payment assistance programs. Several government-backed
loans require lower down payments, which can ease the burden. Other states and local programs also offer grants to help first-time homebuyers with their down payment. It’s worth investigating what’s available in your area.
7. Keep an eye on your credit
Your credit score plays a critical role in getting approved for a mortgage, so monitoring it is essential. A score of 740 or higher puts you in an excellent position to secure a loan with favorable interest rates, while a score below 580 might make it harder to qualify or lead to higher rates.
If you want to i
mprove your credit, start by paying off high-interest debt and making all payments on time — whether for
credit cards, utility bills, or
installment loans like auto or
personal loans. Consistently managing installment loans demonstrates to lenders that you can handle long-term financial commitments. Additionally, review your credit report regularly to identify and dispute any errors that could be dragging your score down.
Let EarnIn help you meet your financial goals
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Feel confident in your credit score and take the next steps in your homeownership journey. Download EarnIn today.
