By: Jamie Buerger
We asked a financial expert—and real couples who’ve been there—for tips and tricks on how to save for a house.
We're not going to sugarcoat it: Saving up for your first house is a serious goal that demands serious effort. And to really get a jump on it, amassing that kind of money—usually 20 percent of the cost of a home—takes more than just opening a traditional savings account and contributing to it whenever you feel like it. It takes dedication, skill and savvy. In other words, you need a plan of attack.
First order of business: Meet with a lender to find out how much of a mortgage you qualify for (or calculate it online), and determine how long it will take you to save up the down payment. Then you need to take a good, hard look at your budget. To help you figure out the quickest path to reach your savings goal, we culled easy-to-implement tips and tricks that helped real people like you turn their homeownership dream into their dream home. Here’s some ideas for how to save for a down payment.
Track Spending and Set Budgets
If you don't already, start tracking your spending ASAP. “You can't change what you don't measure," says personal finance whiz Laura Adams. “Looking at the nitty-gritty of where your money is going can be very eye-opening and help you identify where to cut back." This is especially true if you've been making big sacrifices, but still aren't seeing your savings grow as fast as you want it to. There are a lot of little ways to save—you could skip the morning latte, cut off cable TV or negotiate a cheaper phone plan, for example. “These small cuts can add to your fund in big ways over time."
“I saved for 12 years, starting at age 28 and buying my first home at 40. The first few years I brought lunch and used a spreadsheet to track my spending. I didn't take a lot of vacations or order takeout or take taxis. Having friends with similar values who weren't into expensive stuff made this easy—we cooked and went to cheap restaurants and dive bars, and went to the movies and ushered at plays to get in free." —Cara, New Jersey
Lower or Pay Off Existing Debt
While you’re saving up for a down payment why not pay off debt too? Saving and paying off debt may seem a little crazy, but lenders will look at your Debt-to-Income (DTI) ratio and your credit history when you apply for a loan. So having a lot of debt could sabotage your saving efforts. You could “snowball” or “avalanche” your way to pay off debt faster. Refinancing your current loans or consolidating your debt into one manageable payment are also options to chip away at your debt.
Downsize Your Current Home
Common wisdom has it that you shouldn't shell out more than 30 percent of your take-home pay on housing. If you are, think about leasing a smaller apartment or a more affordable one further from the city center, and then save the extra money you'd be paying on rent. Will it suck? Yes. But “knowing that a big sacrifice is temporary can take the sting out of it," Adams says. And if you really want to go big on cutting back, take in a roommate or—gasp!—move back in with your parents for a year. The chunk of change you save will make it worth it.
“My family of four spent a year-plus with Grandma and Grandpa as we banked our paychecks. They were saints, and we saved the money we needed!" —Jennifer, Massachusetts
Increase Your Income
Here, Adams is adamant: “If you have a way to make extra money on the side with freelancing or a part-time job for a certain time or seasonal work, do it!" she says. Even if you're short on crafting skills that would lead to an Etsy-store success story, there are plenty of other ways to moonlight for money. You could drive for a ride-sharing app on evenings and weekends, deliver groceries or clean houses. In a country where an estimated 53 million Americans freelance, it shouldn't be too hard to find something that fits into your lifestyle.
Set Up Automatic Deposits
Setting up automatic deposits is probably the simplest, and maybe the most effective way to save. You'll just need to contact someone in your HR department, and then fill out a form with your bank info. If your company doesn't offer split deposits, or you work for yourself, you can still set up auto-transfers through your bank to move part of every paycheck into your savings account. That way you'll never even see (or think about) the money that gets siphoned off, and at the end of a year, you may just be surprised at the little nest egg you've grown with barely lifting a finger. It's like magic, really. Just remember to shop around for the best deal—Adams suggests searching current interest rates on Bankrate.com.
“We made sure we had at least $5,000 in our checking. When it was payday and the account was over $5,000, we moved the excess into a savings account. This way, if we were ever in need of extra cash, we had a good buffer. Set a minimum amount that you're comfortable with in your checking account and slowly move the rest over into savings. It works!" —Christina, Texas
Shop Smarter at the Grocery Store
You already know that eating at home versus at a restaurant can save you lots of moola. But even at the store, you might be missing out on more cost-cutting deals. Using coupon apps like Ibotta or Grocery iQ (in addition to the store's loyalty card) can help slash your bills, and buying pantry staples in bulk from wholesale retailers will save you over the long run.
“Things that can be purchased in bulk, such as peanut butter, oil, rice, beans and meat can be bought at Costco for cheap. Items that cannot be bought in bulk, like fresh vegetables, are sold at ethnic markets for significantly lower prices than at normal supermarkets." —Matthew, Utah
Sock Away Extra Cash
Tax refunds, overtime pay and company bonuses should all be funneled into your savings account, says Adams. If you're getting married, stash all monetary gifts too. Taking these actions can literally add thousands to your down payment fund over the course of a year.
“We put all the money we got as wedding gifts into a savings account. It was really hard to do, because there were things that we needed, but every little bit helps." —Janell, Ontario
Invest Your Down Payment
This is a great option to grow your nest egg if buying a house is in your long-term plans; otherwise, you'll want to keep your cash liquid in order to tap it when you need it. And definitely don't invest your emergency fund. “But if you're planning way out, you could invest the money. You're opening up to some risk, but could see nice returns," notes Adams, who recommends this course only if you're planning on saving for three or more years before making the leap to homeownership.
“We made a conscious decision to open an account that earned some interest, plus an account that we could 'touch,' so we could grab that money penalty-free when we were ready to buy a house a few years later." —Stacey, New Jersey
Ditch Your Wheels
Is your city easily navigated by bike? Is public transportation widely available? Is there a coworker who'd be willing to let you hitch a ride in the mornings? Though it's not practical for everyone, getting rid of your car—and the associated costs of maintaining and insuring it—could add up to a major windfall by the end of the year. Plus, if you're a two-car household already, you'd still have one vehicle between you and your spouse for emergencies. And if it's just too painful to imagine life without a car, Adams suggests trading in your nicer car for a junker or refinancing. “Just remember that a vehicle change like that is temporary and can help you get over the savings hump," she says.
Tap into Your IRA as a Last Resort
To be clear: No one is recommending you sacrifice your entire retirement fund for a house. For one, cleaning out your 401(k) to do so would submit you to massive taxes and penalties. But, says Adams, “if you have an IRA, traditional or Roth, you can tap up to $10,000 of it to buy or build your first home. It's a perk that the IRS gives you—there's no early withdrawal penalty." That said, exercise caution if you go this route, because the last thing you want is to have to aggressively play catch-up in order to boost your retirement fund back to where it was.
“The key for us was a Roth IRA. You have to plan ahead, as the account has to have been open for five years. But the upside is since it's a retirement account, you really can't raid it for a splurge vacation or a new car, so it's a great way to save for a house."—Andrew, North Carolina
Ready to start saving for a down payment? Fifth Third Bank has resources and a team of advisors to help you purchase a new home. You can start learning about mortgages as you figure out how much you should put down. First-time home buyer? We’ve put together a comprehensive guide to mortgage basics. You’ll have the keys to your new home in no time!