How to Save Money for a House

With the recession putting a damper on the housing market, a lot of people are wondering how to save money for a house so they can get in the game while prices and rates are still good.

You might think to yourself–saving for a house is just like saving for anything else, right? Yes, technically, there’s no difference. But homes do present a unique savings challenge for several reasons:

  • The amount of money involved is usually larger than any other goal you’ve tackled to date.
  • As a result of the large sum and the other things you need to buy a house, the timeframe is usually longer than any other goal.
  • The amount you’ll need is notoriously difficult to calculate (more on how much money you need to buy a house in the next post).

7 Strategies for Saving Up

If you know roughly how much you’ll need when looking for a new home, the next step is getting your systems in order to make the discipline of saving happen. Here are a few good strategies to try:

  1. Tackle one component at a time: This is a strategy that works well if you like saving toward small, discrete goals. Save only “for the closing fees” until you make it, then save only “for the insurance escrow,” and so on. For the down payment, you can break it down to 3%, 5%, 10%, and 20% levels, or something similar.
  2. Break things down into year & month chunks: Instead of saying you want to “save $30,000 to buy a house,” say you’d like to save “$6,000 a year” or better yet’—“$500 a month.” Seeing smaller, more readily achievable milestones is a good motivator.
  3. Enlist the help of others. Sites like SmartyPig make it easy to get other people involved in your savings goals. One friend I know used his wedding as an opportunity to make progress toward his future home fund.
  4. Do a reality check on your budget. If you don’t have one, be sure to create a budget first. If you already do, see how it’s set up and whether you’re actually following it monthly. Do you plan to save $100 a month or $1,000? That will make a big difference in how fast you get to your goal, or if you can reasonably get there at all.
  5. Balance your future home with other savings goals. Because it’s so time and resource-consuming, focusing 100% of your budgeting and savings efforts on buying a house can come at the expense of other goals, many of which could be important and worthwhile. It’s important to have both a long and short-term view of your money to decide on your priorities.
  6. Pay yourself first. Deposit your paychecks in a savings account and only transfer the amount you’ll need for expenses until the next check arrives. This creates an artificial money floor in your mind and can help build up your savings quicker.
  7. Create graphic tools for your savings. One of my favorites is a money “thermometer” that counts up to a goal. My wife’s favorite strategy is a “vision board” that depicts homes we like in picture form and helps keep our “eye on the prize,” quite literally.

A Final Word

Above all else, understand the reasons you want a home. It might be because you want stability for your family, or because you like the freedom of customizing your living space. If you can’t put your finger on it, chances are you won’t have the discipline and drive to make it to your goal in the first place.

Photo by woodleywonderworks

21 thoughts on “How to Save Money for a House

  1. Great post! I just recently set a goal of “$35K by August 2012” and frankly it seems like too lofty of a goal. Your advice to break it up into manageable chunks really helps. Opened up the “What I need to Buy..” post in hopes of gleaning some more tips. Thanks for the wisdom!


    1. Yeah, big goals are tough for us too. I’ve learned to break everything down for good trickle-down: 6 year goals, 3 year goals, 18 month goals, and 90 day goals.

  2. It’s hard to gear up to save for a house, especially not knowing if we want to stay in this area, but we’re definitely going to start saving just in case.

    1. Yeah, I mean if anything happens–it’s just a large pot of money you can tap for almost any reason.

  3. I found that it was also helpful to go to some open houses for homes that I thought I could afford. For me it was a motivator to save more and faster because the stuff at the bottom of my price range was pretty dumpy.

    1. Brilliant! Doesn’t bother the Realtor, since it’s an open house, and it motivates you to keep going!!

  4. I practice most of these tips! My goal of maxing out my Roth IRA contribution limit every year — $5,000 — is expressed as “save $416 per month.” My goal of buying another home is expressed as me going to open house showings every Sunday from 2-5 (although honestly, I do that because its fun, and I love looking at real estate. It’s a great Sunday-afternoon ritual: church, brunch, look at houses.)

    1. Awesome! I don’t think I could do it every week, but it definitely sounds like a good time. 🙂

  5. This is giving me hope, Wojo, that I can actually save up the money for all expenses (as detailed in your follow-up post). I still struggle with putting money into savings vs. my expenses, but I recently picked up a freelance gig to help me out with balancing my budget, and to start putting more money into savings.

    I’m going to start my goals of buying a house, and the costs associated with the downpayment, closing costs, etc. And I like breaking it down into smaller, more realistic goals, too. Thanks also for the Smarty Pig link!


    ps-South Florida (east) is still pricey, but I’ve found some newer areas that are somewhat “isolated,” i.e., a few miles from bigger neighborhoods, so the costs of those homes are cheaper than even similar ones just 5 miles away!

    1. And if anyone does live in Southeast Florida, I notice that Broward is higher priced than Palm Beach County, for once. I also found some mega-homes in one part of West Palm Beach, but the problem is it’s next to the Turnpike and several major roads. And about 2-3 miles east is one of the worst areas in Florida, in terms of crime. But those homes are ridiculously cheap. I’m single, but I have to think of a future family, and the schools around there aren’t rated well, either.

      I’ve been doing some research, obviously, which helps me to get an idea of what I can afford, and where to live. Another plus is finding an area that is “unincorporated,” i.e., not part of a city. Then you’re only paying county taxes vs. county and city.


      1. Hey, great point about the taxes! City here also has all sorts of fees for trash, all kinds of housing rules, etc, etc… No, thanks.

      2. I moved back to Palm Beach County, and I do notice some areas have some of the most extravagant city landscaping, and the whole area looks beyond clean. But when you go out to an unincorporated area, it looks more normal, which I actually like better. You can tell some of these cities are really taxing residents, and it shows in the landscaping. It’s ridiculous, and I’m sure you’ve seen in your area.


      3. Yeah, but then again I live in an architectural/societal bubble. I don’t think I’ve seen graffiti in my area once in 5 years. It’s good to get out of town once in a while and see reality. 🙂

    2. Awesome! I think earning more is the way to go–there was a good post at Money Under 30 about that just the other day:

      You’re right about South Florida, but it’s 100% better than it was when we were trying to buy in 2008, and we thought we were getting a deal THEN. So I have hope, too! I think you can find homes for the price of rent right now, which is encouraging.

      Best of luck!

      1. I’ve been pricing out some areas, and if I am willing to live in the northern most part of Palm Beach County, I can pay around $100,000 for a small but newer home in a good community. But that’s pretty far north.

        I think central-west PBC is where I’ll look to move. Depending on the neighborhood, prices have come down quite a bit since the high of 2006/2007. Anywhere from $135,000 to $300,000 for newer homes. And I’m thinking newer, since I’m not very handy.

        Rent has gone up, Wojo! About 20-40%, depending on the area of South Florida. I read an article in the Miami Herald about 2 months ago about it. I know I’m paying a lot for rent right now.


      2. Could definitely be a local thing, rent in SWFL seems keeps going down. You can get a 2-bedroom right now for $600-$900 easily, with bonuses on top.

      3. I believe that. I considered moving to the Sarasota or St. Pete area, but all my friends are over here. I think if I can buy a home for around $135,000, I may end up paying around the same or less per month than I do in rent. Plus, I get the tax write-offs for interest and also a home office, since I work from home.


      4. Yeah, prices are getting so low again that the mortgage payment is almost peanuts. The taxes & insurance and everything else ends up being the deciding factor, and unfortunately it VARIES! (That gives me an idea for another post. 🙂 )

  6. That’s the truth, Wojo. Do you think insurance is getting cheaper in South Florida (east and west), since it’s been a few years since the crazy 04/05 storms?


    1. I don’t have a clue–all we have right now is renter’s insurance and that’s dirt cheap anyway.

      1. Yeah, I got renter’s insurance, too, for my apartment. REALLY cheap, though around the hurricanes, you either couldn’t get it or it cost $1000+ a year.


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