Here's What You Can Do to Save Money for a House Right Now

Experts say money management, budgeting, and research can help you achieve your home buying dreams in the future.

The U.S. housing market has experienced significant volatility and unpredictable interest rates, making it difficult for many people to achieve the goal of owning a home. According to Redfin data, in March 2024, home prices rose by 4.8% compared to the previous year, with a median selling price of $420,321. The price increase is due to various factors, including limited housing supply, high demand, and rising construction costs. The national average for a 30-year fixed-rate mortgage is 6.8%, up 0.3 points from the previous year. The rise in borrowing costs has further reduced affordability, resulting in significantly more expensive monthly mortgage payments for potential homebuyers.

Those numbers can de disheartening, but in this challenging environment, it's crucial to get creative—not discouraged. After all, owning your own home still has many short and long-term benefits. Saving enough money to buy a home may seem impossible, but there are things you can do right now to prepare. With a well-planned savings and earning strategy, you can stay on track to be a homeowner sooner than you might think.

Related: 5 Trends for First-Time Homebuying in 2024, According to Opendoor

What to Do Right Now to Save for a House

One of the most crucial things to do when trying to save money to buy a home is to set a savings target. The exact amount will vary by buyer, home type, and region. But do your research and lock in on a realistic number. Expenses to anticipate include the down payment (typically between 3% and 20% of the home's purchase price), closing costs on the mortgage loan (typically about 2-5% of the loan amount), inspection costs (usually $500-$1500), and moving costs.

If you have an older home or a fixer-upper in mind, also consider any initial repairs you’ll need to make before you move in. For some homes, it’s just cosmetic, like changing toilet seats and painting the walls. For others, the rehab is much more significant, and you may be able to roll those estimated costs into your initial mortgage loan.

"Connect with a loan officer who has experience working with first-time homebuyers and can get you started on a plan," advises Fred Bolstad, head of retail lending at U.S. Bank. "Attending a local first-time home buying seminar is a great way to learn what types of down-payment assistance programs might be available in the local area. This will help you understand how much money to save to buy a house in the future. Many people believe you need 20% down, but there are several loan options, especially for first-time homebuyers, where 3% down is an option."

Once you have a realistic home price in mind, you can work backward by setting a realistic savings budget. With a goal of a home in mind, you might be more motivated to set a budget and finally stick to it.

"It's crucial to know your income, expenses, and where your money goes," suggests Brandon Norwood, licensed financial planner and owner of Oak City Financial. "This insight allows you to figure out how much you can set aside for saving towards a home. Often, people find they're spending more than expected on certain things, presenting an opportunity to cut back and redirect more funds into savings. Numerous apps are available to assist with this financial analysis and budgeting process, such as Empower (formerly Personal Capital), YNAB, and Monarch."

Related: Our Best-Ever Tips for Saving Money

Habits to Implement Now to Work Toward Your Goals

If you aren't already doing it, Norwood highly recommends automating your savings. "It's a simple yet effective strategy to save more money," he says. "Automating contributions to your savings account removes the manual effort and the temptation to spend that money elsewhere. Plus, those who automatically save at the start of the month often achieve their savings goals more successfully than those who manually save towards the end."

Seek to earn extra income to increase your saving potential. "To boost your income, consider leveraging skills you're already proficient in (like tasks you perform at your job) for a side hustle or part-time gig," Norwood adds. "For instance, if you're a job recruiter, you could earn extra by offering resume writing services."

Apart from acquiring good money habits, you can also strive to change or eliminate poor money habits. "Some habits that people can change to save a bit more money is to eat out less or only buy what is necessary," Bolstad advises. "It's the sacrifices you make now that will help build your future and have homeownership assist in wealth building via equity in your home. Work on eliminating anything outside your minimum living fixed cost and see if you can save by eliminating unnecessary expenses."

While no one is suggesting you live like a spartan today, it is important to resist lifestyle creep. Defined as increasing your discretionary spending as your income grows, lifestyle creep can let instant gratification and retail therapy rob you of many long-term financial gains. Instead, plan in advance to save raises, tax refunds, and bonuses to pay down debt on high-interest loans, such as credit cards, or to throw it into your “home savings” fund. Paying off loans will free up money that can be redirected to your home savings. It will also help you increase your credit score, which may lower your interest rate when you eventually apply for a mortgage.

Overall, financial responsibility today can pay off in homeownership down the line.

Where to Keep Your Savings

"When saving for a goal that's less than five years away, it's smart to keep the money out of risky investments to avoid losing it,” suggests Norwood. “This way, your cash is safe and ready when you need it. Most individuals could greatly benefit from depositing their money into a high-yield savings account…or exploring current rates for certificates of deposit (CDs)." Money market accounts are also a good option.

Some people can leverage tax-advantaged retirement accounts, like the 401(k), TSP, and IRA, that can be tapped for home loans or personal loans (for a down payment). "Certain workplace retirement plans, such as 401(k)s, offer options like penalty-free withdrawals for first-time homebuyers or loans that can be used towards buying a house,” Norwood says.

Withdrawing funds may have penalties if taken out before retirement age, but getting a loan from your retirement plan may be beneficial. Essentially, you can bank yourself—meaning you’re the lender and you’re the borrower. This is great for people working in very stable industries where they are not likely to be laid off or fired. You can automate repayment directly from your future paychecks.

This approach has pros and cons. If the stock market does well during the years of your loan, then you’ll miss out on those earnings. Alternatively, though, these loans are usually at a lower interest rate than commercial banks offer, and these loans won’t hit your credit report.

More Money Management Tips

Norwood reiterates, "Educate yourself by learning as much as you can about the home buying process, mortgages, and the real estate market. Speaking with an expert in the field can provide valuable insights and guidance. Being informed can help you make smarter savings and purchasing decisions."

Research different assistance programs in your area. Some are offered by the municipal or state government, while others are offered through programs like NACA and individual banks. There are many first-time homebuyer programs that offer down payment assistance, lower interest rates, or other utility benefits. It’s best to research all the details, however, as some have residency requirements, tax implications, and other restrictions that may—or may not—work for your life plans.

If you’re so lucky as to get an inheritance or a cash gift from a close relative or friend, don’t blow it on consumer purchases. While this cash does need to be appropriately documented for the loan, you can use it towards your down payment on a home. This can be a great way to take a surprise windfall and make the most of it.

"Buying a house is the single most important transaction in most people's lives," Bolstad says. "A monthly budget that pays for your fixed obligations and eliminates unnecessary expenses will give you the quickest path to homeownership."

If you think it’s hard to save up for a home, then budgeting today will help you gain discipline needed to maintain your home for the long-term. Sometimes a home is a 30-year commitment—and there’s no landlord or building super to call when the faucet breaks, or an appliance dies. Instead, you’ll be responsible for regular maintenance and repairs, so it’s best to keep a healthy stash of cash for those seasonal and emergency needs.

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