Saving Up Cash For A Home
Saving for a house is hard work (and might take a bit more time than you want it to), but you can do it! And we’ll show you how.
Is It Better to Pay Off Debt or Save for a Down Payment First?
If you have any debt, hands down the smartest thing you can do is pay it off before saving for a down payment. Why? Because the biggest expenses that get in the way of people saving for a home purchase are all debt-related: student loans, credit card debt and car loans.
Then, go one step further and stash away 3–6 months of living expenses as a full emergency fund. Imagine coughing up the funds to cover an HVAC meltdown or roof leak on top of losing a job and still trying to pay your mortgage! An emergency fund turns that crisis into a manageable occurrence that you can walk through.
Sure, it might feel like a bummer to hit pause on the excitement of saving for a home while you clean up debt and build up an emergency fund. But trust us, doing this will help you save for a house faster—and protect you from unnecessary stress.
As long time followers of Dave Ramsey and our Broker/Owner, Steve Prescott, being the Endorsed Local Provider (ELP), now called Ramsey Trusted, since 2009, we recommend following the Dave Ramsey Financial Peace Baby Steps to stay on track with your finances and big goal plans.
Use this link to get an idea and range of the amount of money that you can save in a realistic way, and then an idea of how much you need to save to afford your perfect home price.
Once you’ve determined your dollar amount goal, follow these five steps recommend by Dave Ramsey to save for a down payment and monthly mortgage payments.
Step 1: Set a clear savings goal.
The first step in saving for a house is to know the exact dollar amount you actually need. In a perfect world, you’d pay for your house with 100% cash. But that’s not realistic for everyone.
So, if you’re getting a mortgage, start by asking yourself these questions:
How much should I spend on a house? The answer depends entirely on your lifestyle, your income, how you spend money, how you budget and how much house you’re looking for. But whatever you do, try not to spend more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage—otherwise, you’ll be house poor.
How much down payment should I have? When deciding how much down payment to save, your ideal goal is at least 20% of the home price. Anything less and you’ll have to pay for private mortgage insurance (PMI). If you’re a first-time home buyer, a smaller down payment of 5–10% is okay too. But then you will have to pay PMI.
How long will it take me to save for that down payment? This is up to you, but patience and hard work really do pay off! You should set a goal to save a nice down payment in two years. Try not to drag it out much longer than that, though.
Where can I put money for a down payment? Just like an emergency fund, you’ll want to put your down payment in a place that’s easy to access—but not too easy. Remember: A down payment is not an investment. So, stashing that cash in a money market savings account will get the job done. You won’t make tons on interest, but you won’t lose money either.
Now that you’ve set your goal, it’s time to focus on your savings.
Step 2: Tighten your spending.
Start with the money you’re already bringing in every month. You’ll be amazed at how much money you find when you pay attention to your spending. Here are some ideas to help you tighten your spending while you work on saving for a house:
Take a break from the gym: $60 per month
Save going out to eat for special occasions: $200 per month
Trim your clothing budget: $100 per month
Buy generic: $160 per month
Cut the cable: $110 per month
These tips could save you $630 every month! That adds up to more than $15,000 over the course of 24 months. Get creative and find more ways to trim your spending.
Step 3: Hold off on your retirement savings.
If you’re already saving for retirement, this might feel weird. After all, Dave Ramsey teaches you to start investing 15% of your household income for retirement after you’re out of debt and have your full emergency fund in place.
But if you’re planning to buy a house soon, it’s okay to hold off on your retirement savings and put that money toward your down payment. You’re in charge of how intense you want to be. It’s only temporary. Once you’re sipping coffee in your new breakfast nook, you can get right back to putting 15% toward your retirement goal.
Step 4: Boost your income.
If you’re looking for another way to turbocharge your income, there’s nothing like picking up a side gig or a second job. Your side hustle doesn’t have to be torture either. When you’re thinking up ideas, start with the stuff you love doing already.
Check out these ideas:
Like driving? If you don’t mind carting strangers around or making deliveries, you could make some sweet cash on a flexible schedule through companies like Lyft or Uber.
Enjoy teaching? Search online for tutoring jobs or ways to teach English as a second language. If you have advanced degrees, you could earn even more.
Love pets? Let your friends and coworkers know you’re available to critter nanny the next time they’re out of town.
Step 5: Cut the extras and save even more.
It’s time to get tough and cut out some extra spending. It might hurt, but keep your mind on your why—home sweet home. Here are a few ideas to get you started:
Skip the summer vacay. This one may hurt, but in the long run, it’ll be worth it. Skip the fancy summer vacation and throw that money in savings instead. You could pocket $2,000 from that alone.
Sell some stuff. Do you have a lot of extra stuff collecting dust around your house? Sell it all. Take advantage of online sites like thredUP or Poshmark for gently used clothes, then use Facebook Marketplace or eBay for everything else.
Have a garage sale. Is your neighborhood having a sale soon? A garage sale can bring in some extra dough like nobody’s business. Scoring $500 from a Saturday morning garage sale is a win in our book.
Save all the money you earn from your annual raise or bonus. Planning to get a little Christmas bonus? What about a bonus for a job well done? No matter what that extra cash is for, you can tell the big-screen TV to wait. Stash your bonus money in savings instead. That could be an easy $1,500 bump.
There is so much internal satisfaction when you implement disciplines to reach a goal. Try these tips, utilize Dave Ramsey’s tools, connect with our real estate agency to get started on your homeownership dreams and goals. Call us at 307-635-0303 or contact us on our website.