Saving for a house can be a daunting task, but is one of adulthood's most exciting milestones. You're settling down into a new home, but you're also giving up a large sum of your money in the process. So, how do you prepare for such an important purchase? The obvious thing to do is to put aside money from your income and save it for a down payment. But how can you do this without breaking the bank and becoming completely overwhelmed?
Identifying unique saving techniques that will work better than or in addition to your current saving methods can be stressful. Well, that’s where we come in. We’ve done the research for you and asked financial experts, homeowners, and real estate agents what they advise potential homeowners to do when saving for a house. Here are some ideas that can help you on your journey to home sweet home:
Jimmy Thai bought his first home a year and a half after his college graduation, and from there he purchased additional rental properties every three years. As you can see, he definitely had success with his money-saving efforts. Thai suggests, “Put away your expected monthly mortgage payment for a year to see if this discipline impacts your spending and/or lifestyle. After a year, either you have 4% toward your down payment and know how to deal with a mortgage payment, or you learn that you are not ready for a mortgage obligation.”
Although Thai’s advice may take a little longer to implement into your saving routine, it is definitely worth considering. This way, you not only know if you’re ready to handle a mortgage payment, you’ll also have the experience of paying one, so you won’t be ill-prepared when you do finally own a home.
Desare Kohn-Laski, broker and owner of Skye Louis Realty, shared this tip: “We all know when trying to save for a house that budgeting is essential. But what about the simple ways of saving that don’t require you to balance a checkbook every time you swipe a card? Think about that one daily or weekly purchase that probably has a less expensive option. For example, if your kryptonite is a Grande latte from Starbucks every morning, try kicking it old school for a while and making a cup of coffee at home before work. (Keurigs are lifesavers). Even if you don’t have a caffeine addiction, I’m sure there’s one weekly treat you give yourself, whether it’s eating out or Happy Hours after a stressful day at the office. Cut back on these small expenses and watch your bank grow.”
Kohn-Laski’s advice is a simpler approach to saving money that could help you save money without breaking the bank. Habitual purchases such as getting a daily or weekly coffee can really add up. While cutting back and putting that money towards your house instead may seem small at first, like Kohn-Laski said, soon enough you will see your bank account start to grow.
Kelly Hayes-Raitt, a blogger and published author who discovered housesitting as an appealing way to save for a house, offered this unique advice: “I save money by not paying for accommodations. I house sit around the world where I live in other people's homes at no cost in exchange for caring for their pets while they go on vacation.” She adds: “Not only do I save money for my own home, but I ‘try out’ communities by house sitting. And, by living in a variety of apartments and condos, I learn what features are important to me that I'd like in my own home.”
Hayes-Raitt’s advice, although unconventional, could be a great way to avoid paying certain living expenses and to “try out” communities and find out what you want in a home and neighborhood. Some people may not be able to house sit as often as she did, but if you have the time and the resources, this is certainly something to consider that could help you save money for your future house.
Keith Jenkins, an experienced real estate agent and investor, lent us some of his honest advice on how to save for a house without having to use your own money: “Really the best idea for saving for a house is not to! It is totally possible to purchase a house with none of your own money. Many people use ‘no money’ as an excuse as to why they cannot own a home. But if everyone waited until they had enough money... they probably would never ‘own’ a home. The best way to purchase property is with other people's money (OPM). Partnering on deals will help a new homeowner gain experience, and take most of the risk out of the deals.”
Jenkins also gives us insight into his own experiences: “Personally I've even partnered on a deal and purchased a house with none of my own money and none of my own credit. To the truly serious, money is not an issue when it comes to becoming a real estate investor, or a first-time homeowner.”
Jenkins's advice is especially something to consider when you don’t have a lot of your own money to put up but you are looking to purchase a home sooner rather than later. He reminds us there are other options even when you feel like there are none.
Chasen Nick, a Digital Marketing Strategist for RAMS Home Loans, one of Australia's largest lenders for first time home buyers, had a specific strategy when asked for his advice about saving money for a home:
"My favorite way to save and manage my money is by utilizing an app called Qapital. The app gives you the ability to set up an automated savings account where you decide what triggers a deposit. It’s kind of like a game in which you make up a rule that allows you to round up your extra change each time you buy something with the card that’s connected to your Qapital account. So let’s say you create a rule that rounds your purchases up to the next $5 and you spend $7 on a purchase, then $3 will be placed into your savings account. Over the span of three months, I’ve managed to save almost $1,000 without even realizing the money was gone."
Nick adds, “When you stay informed of how much money is in your account at all times, it allows you to budget differently.” Nick’s advice is a unique approach to saving money that is most likely different from what you are currently doing. It doesn’t require much money out of pocket, but it adds up with every purchase you make.
Deborah Hanamura, Executive Director of Marketing & Communications for Paladino and Company, provides a more traditional route for money saving. Hanamura recently bought a house in the intense and competitive Seattle real estate market. She and her husband started from scratch when they began to save for the house and she says, “The way we saved wasn’t necessarily innovative or surprising. But essentially my husband started a side business that he could do on the weekends and evenings, and we saved every penny from it to produce a down payment in the span of about 18 months. Now that we’ve bought the house, he is continuing to do some work, but not nearly at the pace that he was when we were in saving mode.”
Hanamura also explains, “I was also very transparent with people about my goals. I did not travel for weddings, holidays, etc. because it certainly didn’t make sense for him to work that hard only to spend it on airline tickets. And while we did things, like I would challenge myself not to buy any clothes for six months, and I brought my lunch to work every day, we did still remember to enjoy ourselves and take the occasional weekend getaway.”
Hanamura continues, “We also worked with a financial planner, and we established some smart guidelines about how to divide our contributions to our retirement plans so that our future financial security wouldn’t be compromised by our downpayment goals. In the end we were able to handle the down payment, closing costs, appraisal gap, and moving expenses without touching our safety net of savings.”
Hanamura ended by saying buying a house became a reality in less than two years because she and her husband kept their eyes on the prize without becoming distracted by unnecessary expenses. Regardless of what money saving methods you are using now or decide to use, Hanamura’s experience shows us that whatever you do to save money, commitment is key.
John Reinmuth, a Certified Financial Planner, suggested the first step to saving money for a house should be to “pay off any credit card or consumer debt first.” Reinmuth identifies two benefits to having a zero balance:
"It improves the buyer's credit score. It reduces the percent of the buyer's income already allocated to debt servicing. Both the credit score and the total of current debt factor into the lender's willingness to underwrite a loan. The improved credit score and eliminated debt increase the likelihood of qualifying for a mortgage with less than a 20% down payment. This, in turn, reduces the money needed for the down payment. Thus, they have the same effect as increases the saving for a house down payment. While paying off these debts, the potential home buyer should avoid making credit card purchases until any continuing balances have been paid off."
If you’re uncertain about how to pay off your credit card debt effectively, consider an automated debt management app such as Tally. According to personal finance expert Bethy Hardeman, “Tally helps people overcome their credit card debt by determining the smartest and fastest way to pay it down, then actually takes action for them based on this information. Tally is able to save people money in two ways - by giving them a lower interest rate and by helping them manage their payments, guaranteeing they will never pay a late fee again.”
Reinmuth has another, more creative tip for putting aside a down payment:
"Ask parents to match your increased savings: Dollar for dollar, 50 cents per dollar, or some other ratio. A gift facilitates a mortgage down payment much better than a personal loan. The lender will ask for a written statement regarding whether parental participation is a gift or loan, and will add any loan amount to other debt servicing. My wife and I matched savings for my son and daughter-in-law to purchase their first house in 2000. This encouraged them to look for as many ways as possible to save, as each $1 they saved in effect became $2. At the time of our gift, we had already determined that our savings and pensions were sufficient for retirement."
Reinmuth understands that “with escalating house values, saving for a down payment can feel like reaching for a target that keeps moving farther away.” And he is right. But if you find a way to save money that works for you and gets you into your dream home, that target can be something you hit with a bullseye. It just takes patience.
Jennifer Beeston, the Vice President of mortgage lending at Guaranteed Rate Mortgage, is also a financial vlogger, and she educates people on money and mortgage matters. Beeston advises this when saving for a house:
"A great way for buyers to save for a home is by doing ‘side hustles.’ They stash all their ‘side hustle’ income for their down payment. A few potential side hustles are working for Uber part time, or signing up with Fiverr.com and charging for one of your skills. Local side hustle examples would be dog walking, part-time personal assistant for a busy family, meal delivery, etc. The amount of ways I have seen people make money with a few extra hours every week is astounding. If you have the will and any skill, you can make extra money."
Beeston’s advice is similar to Hanamura’s in that you have to step outside of your comfort zone and take on extra jobs that may be stressful in the moment, but ultimately will make it easier for you to save money and buy the house you want.
Whichever strategy you decide to go with as your money-saving method, our advice is to plan, stay committed, and don’t give up. You’ll hit that bullseye eventually, and we hope these tips get you a little closer to your target. Once you’re settled in your dream house, come back and check out the best home warranty companies so you can get the necessary protection for your home's systems and appliances.
October 18th, 2022
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