According to the latest estimates, over 6 million homes are sold every single year in the United States. The estimate for 2022 is 6.44 million homes. With millions of homes being sold every year, you may think they’re affordable, yet the truth is buying a home is extremely financially taxing. The average newly built American home costs close to $400,000.
If you want to own your own home one day, you need a plan. Here are 10 tips to save up for a home.
1. Shop Around for the Best Deals
The average price for a home in the US may run you upwards of $400,000, but you can get better deals. Depending on the State, city, town, neighborhood, etc. you’re looking in you can get varying prices. Since not all houses and neighborhoods are created equal, you’ll get varying degrees of value for money.
This includes security, location, build quality, utilities, etc. The best approach is to shop around for the best deals.
2. Create a Down Payment Plan
The down payment is perhaps the most important part of a home’s cost. Buyers can expect to pay between 5% and 20% depending on the deal. According to the National Association of Realtors, the average down payment is 6% of the final buying price.
You need to create a plan for the down payment, since it at least secures the home for you. There are basically two options for most buyers: an FHA loan or a mortgage.
You shouldn’t rely on an FHA loan for lower income earners, even if you have a low-income job. The loan comes in at 3.5% of the purchase price but is very difficult to obtain. Instead, you may qualify for a mortgage which requires 5-20% down payment.
3. Setup a High Yield Savings Account
You should set up a high yield savings account to save for your home’s payments. This high yield savings account should be a fixed deposit which can’t be withdrawn from easily. This will help you save for big purchases in the future as well.
4. Setup Automatic Deposits
You should setup automatic deposits to your high yield savings account every month. This way, whenever you get your paycheck, a small portion will always go to savings for your home. This is the most basic of steps on how to save up for a home.
5. Transfer Bonuses and Refunds to Savings
All your bonuses, tax refunds, or surpluses should go towards savings. While you may be tempted to spend these on an electronics upgrade, or a treat for yourself; don’t. Always deposit any extra money into the savings account.
This will help you save for a home faster. Your savings will grow at a higher rate if you follow this rule of thumb.
Temporarily Shift to a Cheaper Place (Optional)
While this isn’t feasible for everyone, if you can manage it, you should shift to a cheaper place. This is only for those who are living in a somewhat more expensive apartment than average. For those who already have their own home and are looking for a change, this step is unnecessary.
For those who have families and can’t afford a move should also pass on this. This is something which is most feasible for bachelors or couples who are willing to bare the hardship.
6. Temporarily Save Less for Retirement
You should put a little of your retirement fund money towards your savings account for a home. Think of it as a temporary arrangement. It’s still going towards your retirement technically since a home is part of your sunset years.
7. Cut Out Luxuries
This one is self-explanatory as far as tips to save up for a home go. You shouldn’t be investing in any luxuries if you’re serious about buying a home. This goes for any expensive phone upgrades or laptop purchases. It also goes for expensive dinner reservations or indulgences like vacations.
This doesn’t mean you can’t treat yourself every so often. Just make sure it’s seldom rather than often.
8. Trim Down Expenses
You may be able to trim down certain expenses like unused streaming services or subscriptions, or memberships. Your unused gym membership is part of it. Cut cable television if you don’t watch it at all and get a cheaper cell phone plan.
You should also shift to cheaper, or free alternatives for as many software services as you can. Try scouring reddit for open-source alternatives. They may serve you even better than expensive subscriptions can.
9. Try Earning Some Extra Money If You Can
A side hustle is by no means a source of pride and you shouldn’t have to work a second job. However, if you can muster up some determination for some part time work on top of your job, it can help. That extra paycheck will go towards your savings completely and help you reach your target faster.
If you can raise some money by selling old clothes or old gadgets you don’t need, so much the better. You can also try investing in some blue-chip stocks or index funds if you want. Those give you an overall return which always helps.
10. Track Your Progress
No matter which steps you’re trying or skipping, you need to monitor progress. You should have a goal in mind and several milestones to achieve before you get to it. Keeping all this in mind will help you track your progress better. It will also give you tiny jolts of happiness each time you clear a milestone. This will also motivate you to go further with greater verve and vigor.
Owning a home is part of the American dream. It’s not easy, but it can be done with discipline and determination. If you follow these 10 tips to save up for a home, you’ll reach that goal soon enough.
