5 Tips to Properly Save for a Home

Build a frugal budget

Evaluate your existing budget – Start by identifying areas where you can cut spending and add to your savings. Be honest with yourself about what you really need to spend on and be realistic about potential cutbacks.

Live below your means – Create a new budget that allows you to contribute monthly to your home savings. The more you prioritize saving and embrace frugal living, the faster it'll grow. Shop with discounts, cook at home, and avoid impulse purchases. Review and cancel any unnecessary subscriptions or delivery services.

Hold yourself accountable – Develop strategies to ensure you stick to your budget, whether that's rewarding yourself for meeting savings milestones, or setting reminders about your commitment to buying a new home.

Automate and grow your savings

Create dedicated accounts – Open a new savings or brokerage account—or both—to easily track your progress and stay motivated. Consider a share certificate as a smart, calculated way to grow your savings.

Automate your savings – Set up automatic transfers that move funds into your account(s) when you receive paychecks. This will help minimize the thought and willpower required to follow through on savings commitments.

Optimize your account types – Make sure any savings accounts for your goal are high-yield savings accounts to grow your contributions faster. If you're opening a new brokerage account, make sure it comes with a sign-up bonus.

Utilize stocks and bonds – Your home savings will also grow faster by investing in bonds, ETFs, and stocks. Manage your risk profile to ensure your account balances are going up, and not down.

Consider a Roth IRA – A Roth IRA can offer tax advantages for growing investments, and you can pull funds out for a first-time down payment with no penalty. Ask a financial advisor about whether this option to save for a house makes sense for you.

Gift Letter – If any generous family members are willing to provide a push toward your down payment, a gift letter is a great way to help. This document verifies that part of the down payment and/or closing costs are supplied by someone other than the borrower as a gift that does not have to be repaid. (PDF)

Reduce major expenses

Reduce housing expenses – Unless you're living rent-free with family, housing is likely your biggest expense, but there are several temporary and efficient ways to save, including moving to a less expensive apartment in a less expensive area, living with a roommate, or renting sparsely used areas of your property if you're already a home owner.

Cut transportation costs – Take advantage of any public transportation your area may provide, and carpool when taking longer trips. Walking and biking, when possible, can also both reduce your costs and improve your health.

Keep your utilities down – Be strategic with your utilities. Never leave unnecessary lights or electrical switches on and use high-efficiency bulbs. Be efficient when using the laundry or dishwasher.

Control your food and grocery budget – Plan meals, shop with a list, and avoid the temptation to order out on a regular basis. Include lower-cost meals in your weekly plans, and try to use as many food options in your pantry or fridge as possible before making the next trip to the grocery store. Remember to freeze food, if possible, to prevent waste.

Enjoy low-cost leisure activities – Explore free or low-cost activities in your area. Enjoy the outdoors, participate in community events, and see what your local library has to offer. Living frugally does not have to mean living a dull life.

Increase your income

Add a side hustle or freelance gig – Boost your income by exploring opportunities that align with your skills and interests, like freelancing, tutoring, babysitting or pet sitting, starting a small business, or a part-time second job. You could also work with a gig company, such as Uber, Lyft, Instacart or DoorDash.

Rent out unused space – If you have extra space like a garage or even a driveway, consider renting it out for additional income. If you have a spare room, list it on Vrbo or Airbnb. Just be mindful of local regulations and have proper legal agreements in place.

Reduce your outstanding debts

Your mortgage rate will significantly impact how much you can afford to spend on a new home. To get the best possible rate—and to determine whether you can be approved for a conventional mortgage or an FHA loan—you'll need a quality credit score.

Understand your debt-to-income ratio – This ratio is crucial for mortgage approvals. A bank takes a risk when they lend you money—the higher your outstanding debts, the higher the risk. Lowering your debt enhances your loan eligibility.

Prioritize debt repayment – Focus on paying off high-interest debts first and balancing debt repayment with saving for your house.

Explore debt consolidation options – If you have significant debt, look into options to settle your outstanding accounts and lower your interest rates.
 
By adopting these strategies, you'll be well on your way to saving efficiently for your dream home. Remember, it's about balance—managing expenses while finding ways to grow your savings and income.

For more advice on purchasing a home, please refer to our Home Buyers Guide (PDF)