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How to save for a house
Plan ahead and stash away extra cash — even when money’s tight.
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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. Start by determining how much you’ll need to save for a down payment and other closing costs that come with buying a home.
How to save for a house
Thinking ahead for the purchase of your first home can save you money in the long run. For example, coming up with a larger down payment can mean smaller monthly payments and less interest. Other points to consider before you start stashing money away:
1. Map out your finances
To get a comprehensive overview of where you stand financially, list your income, expenses, debts and all other assets. 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.
2. Research
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 loan options you might qualify for.
3. Set a goal and plan ahead
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.
4. Open an account
With so many savings options out there, you may need to compare accounts. Look at factors such as interest, minimum deposits and fees.
Editor's pick: Barclays Online Savings Account
Once you create your budget and goals, determine how much you can afford to contribute each month. Treating these contributions like a bill can help you make savings a habit.
How much should I save for a down payment on a house?
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 July 2019 was $312,800. Using this data, see how much the down payment varies:
Average purchase price | Percent down | Down payment amount |
---|---|---|
$312,800 | 5% | $15,640 |
$312,800 | 10% | $31,280 |
$312,800 | 20% | $62,560 |
Other costs to consider
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: Be prepared to encounter closing costs when purchasing a home — typically 2% to 5% of the purchase price of the property.
- Homeowners insurance: You may be required to purchase homeowner’s insurance, which can cost between $300 to $3,000 yearly based on property type and coverage amount.
- Private mortgage insurance: Without a 20% down payment, the bank requires you to pay a PMI that costs between 0.3% to 1.2% of your loan amount each year.
Closing costs include the following:
- Credit report fee. As part of the loan underwriting process, most lenders charge between $30 to $40 to obtain your credit report.
- Appraisal fee. A professional home appraisal helps your lender assess the property’s market value and typically costs $300 to $500.
- Survey fee. Expect to pay around $350 for a survey of the property to assess boundaries and property lines.
- Property inspection fee. You’ll likely pay between $200 to $400 for an assessment of property conditions.
- Title insurance fee. This $1,000 to $5,000 fee is paid at closing and covers the lender and homeowner in the event of ownership record errors.
- Origination fee. This administrative fee of 0.5% to 1% of your loan amount is charged by your lender to process your loan application.
Best accounts to help you save for a down payment on a house
Types of accounts to save for a house
Consider opening a low-risk account to help save for a house.
Traditional savings accounts
These accounts generally pay between 0.01% and 2.5% APY and have low balance requirements and low monthly fees. Some come with features like autosave or budgeting tools.
Money market accounts
Money market accounts are similar to traditional savings accounts, but give 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.
Certificates of deposit
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.
How to compare accounts for a house
Consider these factors before opening an account:
- Fees. Look out for monthly fees that could eat into your balance and find out if the accounts offer ways to waive fees.
Interest rates. A higher interest rate can help you save more. Try to find the best rate possible. - Access. Consider how often you’ll need to access your money. Each option has different considerations, so do your research.
- Features. If possible, try to find features like autosave or roundups that could help you save more.
- Bonuses. Bonuses and rewards programs are a solid way to get a head start.
- Eligibility. Watch out for eligibility requirements, fee waiver conditions and other details to avoid a rejected application or extra fees.
Tips to save for a down payment on a house
- Start early. Once you’ve determined when you want to buy, open a dedicated account and start saving as soon as possible.
- Save in a joint account. If you’re buying with a partner, opening a joint savings account can help you save and earn interest together.
- Automate it. Take advantage of autosave, roundups or any other features that let you automate your monthly contributions.
- Cut back. If you know you’ll be buying a house in the near future, try to cut back on unnecessary expenses.
- Eliminate debt. Less debt means more money you can put toward your savings. Plus, a lower debt-to-income ratio could increase your chances of mortgage approval.
- Reroute other payments. If you pay off debts or cancel bills, consider rerouting those payments into your dedicated savings account.
- Start a side hustle. Starting a side business based on a hobby or other resource could generate a bit of extra income for your savings.
Bottom line
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 savings accounts.
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