How to Save Money for a House: a Step-by-Step Plan

Have you always dreamed of being a homeowner? It’s time to turn that dream into a reality. Stop imagining and start saving up for a down payment with this step-by-step plan from the financial advisors at American Investment Planners:

• Step 1: Figure out how much you’ll need to save. First things first, you need to figure out (roughly) how much money you need to save. As a rule of thumb, your housing expenses should not exceed 25-30% of your monthly income. This includes mortgage principal and interest, taxes, and insurance. You should also aim to save at least 20% for a down payment; this much money is not required, but it will help you earn better interest rates.

• Step 2: Open a savings account. Next, you will need to open up a savings account so you have a place to hold your money. Keep this account separate from your traditional savings account or emergency fund, but consider opening it at the same bank for convenient e-transferring capabilities.

• Step 3: Create a budget. Make a detailed list of your monthly income and expenses. After calculating the necessary bills and other costs, how much money are you left with? And how much of this leftover cash can you comfortably put towards your new home each month? Make sure to keep your budget somewhat flexible for unexpected occurrences. You can learn more about creating a budget here.

• Step 4: Make your monthly deposits. Congratulations, you’ve determined how much money you need to save each month to meet your goal. Now comes the hard part: actually saving it. Setting up automatic deposits can help you put away your money before you accidentally spend it on something less important.

• Step 5: Save 100% of your windfall money. We all have those occasional events that bring us some extra cash: holidays, birthdays, special celebrations, work bonuses, and income tax returns just to name a few. Put 100% of this “extra” money towards your new home to help expedite your savings plan.

• Step 6: Check your credit score. When you start to make significant progress on your goal, it’s a good idea to sit down and check your credit score. A better credit score means lower mortgage rates, and since poor scores can take awhile to improve, it is something you want to address as early as possible.

• Step 7: Sit down with a real estate agent. Once the time comes when you are almost at your goal and your credit is in good standing, it’s officially time to sit down with a real estate agent and start looking for a new home. They can help you determine if your savings are sufficient, shop for mortgage rates, and show you qualifying homes in your area. Happy house hunting!

Are you having trouble planning and saving for a new house? The financial advisors at American Investment Planners, LLC can sit down with you and help construct a plan that meets your needs and budget. To schedule an appointment with one of our consultants, please call (516) 932-5130 or email info@americaninvestmentplanners.com.