A high-yield savings account to save for a house: American Express® High Yield Savings
- Monthly fees: $0
- Interest compounded daily
- Minimum deposit to open: $0
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Getting ready to trade in your monthly rent payments for homeownership is an exciting step. But with it comes the need to take a long, hard look at your finances. Follow these five tips on how to save for a house.
To get a comprehensive overview of where you stand financially, create a budget by listing out your income, expenses, debts and other assets and liabilities. This can help determine how much you can afford to spend, where you can buy and ultimately how much to save for a down payment.
If you know you’ll be buying a house in the near future, try to cut back on unnecessary expenses. Or — if you have the time — consider starting a side business that could generate a bit of extra income for your savings.
Determine how much you want to save for a down payment and how long you have to save. Coming up with monthly deposit goals that work for your financial situation will help you stay focused and make progress. For example, if you can save $500 a month according to your budget, and you’re saving up for a $24,000 down payment, then you know it’ll take four years to save up enough funds.
Once you’ve set your down payment savings goal, store the funds in a high-yield savings account with a competitive APY, low fees and a minimum deposit you can comfortably meet. If you’re buying a house with a partner, opening a joint savings account can help you save and earn interest together. If your current savings account doesn’t have a high APY, consider comparing your options to find one that will help you earn more.
Take advantage of autosave, roundups or any other features that let you automate your monthly contributions — that way they’re out of sight, out of mind. Treating these contributions like a mandatory monthly expense will help make saving a habit.
Enjoy no monthly fees and a competitive APY with this online-only savings account. Accounts offered by American Express National Bank, Member FDIC.
|Minimum deposit to open||$0|
|New account fee||$0|
|Minimum balance to earn interest||$1|
Look into cities or neighborhoods you’d consider living in, different property types and average housing prices to get an idea of what the market looks like. Then, read up on mortgage loan options you might qualify for.
Eliminating debt has two benefits. First, less debt means more money you can put toward your savings. But more importantly, paying off debt lowers your debt-to-income ratio, which increases your chances of mortgage approval. As you pay off debts and cancel bills, consider rerouting those payments into your dedicated savings account.
Home buyers usually pay between 3% and 20% of the total cost of the home for a down payment. According to data from the US census, the median house price as of November 2019 was $330,800. Using this data, see how much the down payment varies:
|Average purchase price||Percent down||Down payment amount|
Beyond the down payment and actual cost of the home, there are a handful of other mortgage costs that can come with buying a house. What you pay depends on factors like how far you move, the size of your house and the type of loan you apply for. Here’s an example of what you can expect:
Closing costs include the following:
Consider opening a low-risk account to help save for a house.
A savings account generally pays between 0.01% and 1.75% APY and has low balance requirements and low monthly fees. Traditional savings accounts may give you more ways to access your money, but online savings accounts reward you with the highest APYs. Some even come with features like autosave or budgeting tools.
A money market account is similar to a savings account, but it gives you more access to your money with checks and debit cards. They’re best for those that have a solid savings because they usually have high balance requirements. These accounts typically pay between 0.08% and 2.35% APY and generally have similar fees as savings accounts.
Once you have a chunk of money saved, consider a CD to lock away your money for a fixed term — all while earning interest. Depending on your deposit amount and the term length, your deposit could earn as high as 5% APY. However, you usually can’t add money to your CD during the term, and you’ll pay a penalty to withdraw before the maturity date.
Consider these factors before opening an account:
Use the table to compare savings accounts that can help you save for a down payment on a house. Sort the list by APYs, fees and opening deposits. If more than one account catches your eye, compare them side-by-side by clicking the “Compare” box next to each.
Saving for a home is exciting, but takes planning, research and commitment. Finding the right account and sticking to a plan can help you stay on track. To find the best account for you to grow your money, compare top-rated savings accounts.
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