Houses are expensive, and saving money to buy a house can take years. In fact, the average sales price of a new home was $346,400 in January 2021, according to U.S. Department of Housing and Urban Development (HUD) and the U.S. Census Bureau, and the average sales price was $408,800. For first-time home buyers, committing to a purchase price in that range can be daunting. However, mortgage rates are low, so it’s possible to buy real estate and have monthly payments that are on par or less than what you’re paying in rent.
If you’ve set a savings goal—including for a down payment and closing costs—and you’re getting ready to buy, use an online mortgage calculator to help figure out your monthly payments and understand how much more you’ll need to save before making a move.
Follow this guide to discover the seven ways to save money for a house:
- Save extra money (like from stimulus checks, tax return, or year-end bonus)
- Take advantage of low to zero down mortgages
- Consider a balance transfer credit card
- Make use of your retirement plan
- Automate your high-yield savings account
- Find a roommate
- Cut back on non-essentials
And when you're ready to move forward with seeking out a mortgage, head over to Credible, where you can compare multiple lenders and interest rates all in one place without affecting your credit score.
1. Save extra money (like from stimulus checks, tax return, or year-end bonus)
The third round of stimulus checks totaling up to $1,400 for individuals was distributed to millions of Americans as part of President Biden's $1.9 trillion coronavirus relief plan.
Your stimulus check, any overpayment on your 2020 tax return, or an unexpected year-end bonus from your employer are all excellent options to start saving for a down payment on your new home purchase.
2. Take advantage of low to zero down mortgages
Saving money for the standard 20% down payment might be an uphill battle. Many first-time home buyers go with an FHA loan because they require only a small down payment and have less stringent credit requirements.
Jason Gelios, a realtor at Community Choice Realty and creator of The AskJasonGelios Real Estate Show, says, “Even with limited savings, first time home buyers can also take advantage of low to zero down mortgages, and use cash to cover upfront costs such as the home appraisal and inspection.”
While it’s generally true the best mortgage rates and terms are reserved for applicants that have a good credit score and history and can make the 20% down payment, taking advantage of low or zero down mortgages can help you make a home purchase without a large outlay of cash upfront.
In the meantime, work on your credit score to take advantage of the best interest rates, and compare all your mortgage options by visiting Credible to find the best rates and lenders.
3. Consider a balance transfer credit card
If you’re carrying large balances on high-interest credit cards, you might want to consider transferring them to a balance transfer credit card. These cards typically offer lower interest rates during a promotional period. You might also get better terms than with your current credit cards, and you can consolidate your credit card debt to simplify your monthly payments.
Be aware you might have to pay a balance transfer fee from the start and may end up with a higher interest rate after the promotional period ends. Your credit score might be impacted due to the credit card approval process.
Don’t get stuck paying more in interest. Instead, visit an online marketplace like Credible to view multiple 0% intro APR balance transfer credit card options at once.
4. Make use of your retirement plan
Orlando Miner, CCIM and CEO of Miner Capital Funding, recommends using your retirement 401(k) as part of your overall plan. “Retirement plans are a great way to grab money for your mortgage, and many plans have a penalty-free option just for mortgages.” But keep in mind, you can only borrow up to $50,000 or half the vested balance (whichever is less) in your 401(k) account. You will be required to pay back the loan with interest, and some 410(k)s require repayment within five years.
5. Automate your high-yield savings account
A high-yield savings account typically pays higher interest than a traditional savings account. You can reach your savings goal by setting up a high-yield savings account and making sure part of your paycheck automatically goes into that account, so you’re not tempted to spend it elsewhere. You might even consider opening (and automating) a separate savings account solely for the purpose of saving money for your new home.
Before you open an account, visit Credible to earn more cash and find a high-yield savings option that best fits your goals.
6. Find a roommate
If you pay rent all by yourself, you might consider getting a roommate. That way, you can split your monthly payment, utilities, and other recurring expenses in half, and put the money you save in an interest-bearing account. Save $1,000 per month, and at the end of one year, you’ll have $12,000 in the bank, plus interest earned.
Again, you can check out interest rates and high-yield savings account options that fit your situation on the Credible marketplace.
7. Cut back on non-essentials
One of the best ways to save for a mortgage is to consider cutting back on everyday expenses, like gym memberships, magazine subscriptions, streaming services, or dining out.
Justin Dwyer, the co-founder of Cambio, a digital “second-chance” banking app, says, “If you stop at a drive-through lunch spot every day, take a different route, so you don't see that storefront. You're less likely to experience a craving if you don't see the thing that you're craving that most.”
Since buying a home is expensive, figuring out where you want to live, what kind of home you’re looking to buy, and in what price range, you can better determine what down payment you can afford and what your future mortgage payments will be.
Speak with your financial advisor as you're gearing up to save money for a home. Credible can also get you in touch with experienced loan officers to get all of your mortgage questions answered.
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