How to Save Money For a House

As you look toward buying a house, having sufficient cash reserves enhances your ability to handle purchase-related expenses. When determining how much to save, factor in the down payment, home repair costs, closing costs and a new or potentially higher monthly payment. A better cash position will minimize your out-of-pocket closing costs.

Trim Those Expenses

Reduce Recurrent Bills

By shopping rates for major monthly expenses, you'll likely find significant savings while keeping your essential services. Beyond that, take a hard look at your Internet, cable and mobile phone plans. Shift to a lower rate plan, or accept fewer available channels, to achieve your home ownership goal sooner.

Adopt a Budget

Formulating and adhering to a monthly budget documents your spending habits and identifies areas where you can reduce expenses. Create a spreadsheet that displays your monthly net income after taxes. After listing recurrent monthly expenses, such as credit card bills and car payments, you'll arrive at the disposable income that funds your cash outflow.

Stopping for morning coffee, or downloading the latest tunes every week, might seem like insignificant expenses. However, adding them to gas, food and other incidental expenses will provide a stark picture of where your money goes. By regularly reviewing the spreadsheet, and making decisions consistent with your home purchase goal, you'll accumulate the funds more quickly.

Increase Your Savings

Automated Account Deposit

After you commit to a monthly savings figure, don't rely on willpower to deposit those funds into the mortgage kitty. Instead, create an automatic payroll deduction that sends dollars directly into that account. If you're planning a home purchase within a year or two, a traditional savings or money market account will keep your funds liquid.

Divert Additional Funds

Augment your automatic savings plan by reducing your contributions to other savings programs. Divert those newly available dollars to the mortgage fund. Additionally, consider downsizing your vacation plans and putting off the purchase of a new car, boat or luxury item. Steer that extra cash to your growing home purchase fund.

Find Hidden Savings

By making some lifestyle adjustments, you'll likely identify more ways to generate home purchase funds. Getting a second job, moving in with family or selling personal possessions can prove surprisingly successful. If there's a wedding or holiday on the horizon, forego the gifts and request money for the mortgage fund. By treating the savings process like a game you'll ultimately win, you'll probably find it easier to keep your eye on the prize.

Your Home-Buying Budget

Now that you've streamlined your expense reduction and savings functions, develop a budget for the actual home purchase. Your down payment drives everything else, as the transaction can't proceed without it. After the home inspection, you'll likely be required to complete some degree of home repairs. Moving expenses can vary depending on the move's complexity and distance. To save some cash, do your own packing and transport at least some furnishings and boxes yourself.

Tip

If you've diligently built your cash reserves, you'll minimize your out-of-pocket closing costs. However, these savings might be tempered by a new or higher house payment. After you wrap up the home purchase, reassess your available resources and expenses. By regularly fine-tuning your budget, you'll be in a better position for home upgrades or a future home purchase.

Down Payment Options

You might not need to sock away as much cash for a down payment as you think. Although a 20 percent down payment is customary, conventional loans can require as little as 5 percent of the sale price. If you're a first-time homebuyer, or have a lower household income, consider a Federal Housing Administration loan requiring a 3.5 percent down payment. Eligible veterans might qualify for a no-down-payment mortgage through the Veterans Affairs office.