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How to start saving for a house

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You should save for a house as soon as you have the desire to buy it. Most people know that a home is probably the biggest purchase they will ever make. But many first-time buyers underestimate the amount of money they will need to purchase their dream home.

Key conclusions

  • Home buyers can expect to pay 5-20% of the purchase price as a down payment.
  • Closing costs are 2-5% of the purchase price.
  • Moving costs can run into the hundreds or thousands of dollars.
  • Find ways to save money – move in with family and/or cut back on shopping – to buy a home.

Cost breakdown

Perhaps the most important of the costs of buying a house is down payment. Typically, buyers can expect to spend 5% to 20% (or more) of the purchase price for a down payment. Standard rate for an FHA loan for the poor – 3.5% of the purchase price. It should be noted that these FHA loans can be difficult to obtain. A buyer is more likely to qualify for a mortgage that requires 5%, 10% or even 20% down. For 2019 National Association of Realtors (NAR) found that 6% is the average down payment most home buyers pay for a home or condo.

Then there is closing costs necessary to complete the sale. They vary widely due to differences in state and local regulations and taxes, but are typically between 2% and 5% of the home’s value.

And don’t forget moving costs, which can easily run into four figures for a rat pack or family. Some save by doing this duty without the help of professional movers. Doing this alone can save you hundreds or thousands of dollars; however, it is labor intensive and requires a fair amount of time.

If you don’t have the money to cover the costs associated with buying a home, how will you save for it? To get started, create a separate account for buying a home. Then follow any or all of these six suggestions for one year and see how much you have in your account.

Pay yourself

In accordance with Michaela PagelAccording to Roderick H. Cushman, associate professor of business at Columbia University, the very first thing you need to do to start saving for a house (or anything, really) is to get your accounts in order. And, if you’re able, that means starting with your salary.

“Set up an automatic withdrawal to your investment account the day after you get paid. That way, the money won’t burn through your pocket,” she said. But she cautioned that you should only do this after paying off any high-interest unsecured debt, such as credit cards.

Invest your windfall

If you get a bonus at work, a tax refund, or some other unexpected amount of money, don’t waste the money. Put money into your home buying account. Consider savings accounts that earn interest so your money can grow over time. In addition, there may be a temptation to access excess funds; therefore, restrict access to the account or invest in an account that automatically restricts access.

Get a cheaper place

If you currently live in a rental, consider moving to a smaller, less expensive home or finding a roommate to share the costs of your current home. Cutting your rent by $300 a month will save you $3,600 a year.

If you are single, consider spending a year with family or friends. Yardi Matrix, an industry information service, reports the average U.S. rent at $1,642 as of March 2022. Using this number, you could save quite a lot per year.

Save less for retirement

If possible, don’t withdraw money from a retirement account or borrow against it. You will either pay back the loan with interest or be subject to withholding tax and possible withdrawal penalties. Instead, lower your down payments a bit until you get into that house.

For example, if you’re contributing more than your company match to your 401(k) plan (congratulations on smart planning), you may be able to cut that back and put the extra money into your home fund.

Express luxury

If you’re saving for a house, you’ll naturally be cautious about making big purchases on fancy vacations or expensive clothes. But also watch out for the little things. A fancy cocktail at the bar today can cost $16. Even if you cut that down to two drinks a week, that’s $1,664 you could put into your home equity in a year.

Strictly plan your cash flow and put your savings into a home account.

Reduce routine expenses

If you think about it a bit, you may come to the conclusion that some of your monthly running costs can be eliminated. Cut the cable TV cord. Get a cheaper mobile plan. Ditch the gym and ride your bike to work.

You may find that you don’t even miss these things, at least if you put the equivalent amount of cash into your home account.

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