How Much Should You Save for Your First House?
Buying a home is the biggest purchase many people will ever make, and figuring out how much to save and spend for that purchase can be overwhelming and stressful. One thing that throws many people off is the myth that the down payment must be 20% of the home’s value. In actuality, many lenders require only 5% and others as little as 3% in order to qualify for the loan. But the down payment isn’t the only expense to be aware of: closing costs, moving expenses, and hardware supplies (even if the home is brand new, you might be surprised at the little things you’ll need as you move in) will all add up quickly and should be part of your savings goal. Also, if you don’t have a down payment of at least 20%, your lender may require private mortgage insurance, which will increase your monthly mortgage loan payment.
Home Loan Calculator
Start by figuring out how much you can afford to spend on your mortgage loan each month. Use a mortgage calculator to see how different interest rates and down payment amounts can change the monthly payment.
The calculators provided on this page are provided for general and educational purposes only. They are not intended to provide legal, tax, or investment advice. The accuracy of these online tools and their applicability to the information provided is an estimate and is not guaranteed. Your actual figures (i.e., monthly payments, total payments, home value, etc.) could vary based on many factors.
Tips for Saving
Let’s get to the ideas you could use to start saving up for your big purchase:
1. Set Your House Goal
Knowing how much you can spend each month on mortgage loan payments will help you understand how much house you might afford. Remember—you don’t necessarily have to be at the top tier. You might be more comfortable each month if you choose a property that costs less.
2. Determine How Much You Need to Save
Remember to factor in not just the down payment but other associated costs as well. Then look at your current savings and assets to figure out how much you still need to collect.
3. Get Your Debt Under Control
If you’re carrying a lot of debt, you can’t save as much for a house because you’re having to send a portion of your monthly income toward paying that debt down. If you have student loans and are looking to qualify for the government’s debt-forgiveness program, you’ll want to take advantage of it as soon as possible. If you have a lot of credit card or personal loan debt, find a way to consolidate it under one loan to try to get a better interest rate. The less you spend on debt each month, the more you can save and the closer you will get to your home saving goal.
4. Set up a Budget
Having a budget will help you set your day-to-day plan for intake and expenses. Make a budget that will work for you—if giving something up will ultimately make you stray from the budget, come up with other ways to change expenses. For example, shop around for car insurance to see if you can get a lower rate for similar coverage. If you have subscriptions or memberships you’re not using, cancel them. Finally, if you don’t pay off your credit cards each month, switch to using only your debit card—that way, you’re boxed in to spending only what’s on hand, not what you’re borrowing from someone else (the bonus is that you won’t be spending any on monthly interest charges either!). Just make sure you don’t spend more than what you have available in your accounts, or you may spend more money on overdraft fees.
5. Automate Your Savings
If you have trouble keeping yourself from spending money when you have it, get some help from technology. After you determine how much of your income you want to go to savings each month, you can set up automatic transfers from your main account to your savings account so that you won’t be tempted to splurge on an unplanned expense.
6. Pause Retirement Savings Temporarily
This idea comes with a side note: You should consider this carefully because retirement savings is also important. If you’re nearing your retirement years, this would likely not be a great idea for you. However, if you’re younger, you might be able to afford a little time off from retirement savings in favor of getting that big-purchase property that can also grow in value. Be sure to speak with a financial advisor on this one to be sure it makes sense for you.
7. Check Your Progress Monthly
To stay inspired, celebrate any accumulation of savings, even if it’s small. Check your progress every month to see that figure grow, so you can get excited about how close you’re getting to owning your own home. Once you’re ready to start getting a loan in place or if you have other questions, be sure to contact a Bellco Home Loans representative, who can walk you through the process and get you that much closer to your dream.