3 tips to start saving for a house

Purchasing a home generally makes financial sense. It builds equity, which, for many Americans, is a key to long-term wealth. With the average home price rising by over 47% since 2020,¹ however, saving for a house is critical. The higher your down payment, the smaller your monthly payments will be, leading to less debt over time.

The best time to begin saving for a downpayment on a house is now.

In this guide, we’ll share 3 tips to help you begin the daunting process of saving to purchase a home. Continue reading to learn what it takes to become a homeowner in America and start building equity.

The first step in crafting any savings plan is understanding how much you need to save to achieve your goal. This is your target amount.

Typically, prospective homeowners are saving for a down payment on a house. This is usually 10% to 20% of the purchase price of a home. However, many first-time homeowners make an average downpayment of 6%.²

As of August 2024, the average home price in the United States is approximately $495,000.³ Thus, prospective homeowners should plan to save between $30,000 and $100,000. It is wise to plan to pay additional closing costs, which can increase that target by 1.5 to 6% of the total closing cost.

With that said, home prices are rising in some markets and falling in others. Do some research into the area where you hope to buy to gain a clearer understanding of the market.

Your goal should not necessarily be static. Market research should be ongoing, as prices can shift rapidly from year to year. You may need to adjust your savings plan to address rising property prices in your desired area.

Using a savings calculator tool can make it easier to set a clear savings goal. You’ll need to know a few things, including:

• The current price of the home you desire
• The estimated appreciation rate
• The downpayment you’d like to pay

With that information, mortgage calculators can tell you approximately how long it will take to achieve your goal.

Once you know how much you need to save, you can create a plan to achieve your goal. It is easiest to break the total into manageable monthly savings targets. Naturally, the more you contribute each month, the sooner you will reach your goal.

Remember, the higher your down payment, the more equity you have to start with. As a result, you may be less likely to need private mortgage insurance. Decide what you value more: quickly owning a home or slowly building long-term financial freedom.

We offer two tips to start saving money for a house below.

The lower your living expenses, the more money you will have to contribute to your savings. It can be helpful to begin by crafting an itemized budget of monthly expenses. This will create a clear snapshot of where your money is going. That knowledge makes it easier to determine where you can cut back.

Prospective homeowners often increase their monthly savings by:

• Cutting back on dining out and eating at home when possible
• Making and sticking to grocery shopping lists
• Eliminating unnecessary subscription fees
• Negotiating their bills, such as cable and internet
• Shopping for cheaper insurance
• Designating “No Spend” days or months
• Couponing

Once you’ve found places to cut back, ensure you’re putting your money somewhere it can grow. You could set up a dedicated savings account for housing. This will help you mentally keep these funds distinct from those you use for expenses.

To start, we recommend a high-yield savings account or money market account. Unlike traditional savings accounts, these options come with competitive interest rates, often above the national average. If you create an account with the right institution, you can avoid high minimum deposits and charge fees.

If you’re worried about dipping into your funds, a certificate of deposit (CD) is another option. CDs typically offer among the highest available interest rates of all banking deposit products.

That said, CDs come with a fixed deposit term. You are expected to leave your funds in your CD account for a fixed period of time. When the term is up, you can withdraw the full amount of your deposit plus interest. You can then choose to reinvest those funds or place them in another product.

You can also save more by maximizing your income. Consider a side job or taking on freelance work to increase your monthly pay. Some prospective homeowners start small businesses or pursue passive income opportunities.

Alternatively, you can aim for a merit-based salary increase or promotion at your job. Often, a raise or new position becomes the impetus to begin a more aggressive savings strategy.

Finally, use any extra income wisely, whether expected or unexpected. From tax refunds to a sudden inheritance, these funds can go a long way toward helping you reach a savings goal. Remember, money in your savings account has the power to grow rapidly. Every dollar you place into those accounts will yield valuable interest that can help make your dream a reality.

Raisin makes it simple to open a savings account to save for a house. Head to our savings accounts page to get started.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.