6 Steps to Take Now to Save Money For a House, According to an Expert

It is no secret that buying a home requires a fair amount of time, energy, and most importantly, money. It's undoubtedly a huge factor that interferes with a person's ability to commit to purchasing a home, with up-front costs like down payments, closing costs, lender fees, and more, requiring upwards of tens of thousands of dollars. In the world of real estate, inflated home prices combined with high interest rates and frugal living conditions dictated by high rental prices, credit card debt, and student loan debt make for a less-than-ideal market for buying a first home, according to The National Association of Realtors.

This cocktail of factors is so significant that the average share of first-time homebuyers in the market dropped from 40 percent to 26 percent in 2022, with the average age of first-time buyers rising to 36. The reality is that an increasing number of people — millennials in particular — need more time to afford to buy a home. Given the variety of factors at hand, sometimes the goal of saving money can seem as intangible as the tooth fairy. Some financiers and experts often give a one-size-fits-all approach to saving money for a home, with common tips usually centering on cutting out everyday expenses (like excessive Starbucks orders or daily avocado toasts). But saving money is a lot more nuanced than ditching coffee or parting ways with a forgotten subscription; it can involve refinancing, consolidating debt, investing, and more.

If you're lost at how to start saving for a home, POPSUGAR talked with an expert to help address your concerns and give you tips to help you get started.

"In today's world, knowing how much you can realistically afford is the first step," explains Selina Hower, a realtor with Berkshire Hathaway. Budgeting for a home can be broken into two different categories: the money you need up front, and the money you will pay each month. Up front, you want to save for the down payment, the closing costs or settlement fees, and moving expenses. A down payment is the percentage of the home purchase price that you have to pay up front to the seller in cash, which you submit within the first few days of your offer being accepted. Closing costs or settlement fees, on the other hand, are a combination of costs, including taxes, broker fees, and more. Hower tells POPSUGAR, "Settlement fees can include things like transfer tax, loan origination fees, property tax, and all the other costs required to transfer the deed of a property."

Once you have a set number of what you can afford up front, calculate how much you can comfortably pay each month for your mortgage, utilities, homeowners' insurance, etc. Hower warns, "Just because you qualify for a certain amount does not mean you have to use it all. Make sure you discuss monthly payments with your lender."

Most lenders recommend spending no more than 28 percent of your income on housing expenses, which can be calculated by dividing your estimated monthly mortgage payment (including insurance and taxes) by your pretax income. Then factor in debt payments, utility costs, food, etc. for an overall monthly estimate of expenses.

Many first-time homebuyers will keep down-payment funds in a regular savings account, which is a solid choice, but a high-yield savings account can help you make money on top of what you're saving in your account. These types of accounts can include money market accounts and CDs, which have higher interest rates and require no extra effort on your end. "Any type of quick-access savings account works in this case," Hower explains. "Especially ones that you earn on your investment. You will need to tap into these once you are under contract."

Additionally, if you don't have enough money up front, but a family member wants to help, Hower notes that most lenders will also allow a "gift" of funds that can go toward the overall down payment.

For some first-time homebuyers, debt is a huge factor that affects the type of loan and loan amount they qualify for. With car loans, student loans, and credit-card debt totaling in the tens of thousands of dollars for some, it can seem like refinancing loans and consolidating debt would be the logical solution to increase the chances of loan approval and save money, but it truly depends on your financial situation and mortgage lender. "Once in a while, a lender will require you to pay off certain debts to qualify for a loan," Hower says. "Other times, consolidating may alter your debt-to-income, and you can then get approved for a higher loan amount. Sometimes having too much open credit can hurt as well. Lenders look at it as if you can go into large amounts of debt quickly." Ultimately, it's best to talk with your mortgage lender to gauge the exact requirements they want from you.

Eliminating and minimizing debt is not an option for many, so any work or effort you put into paying down your debt can go a long way. If you can afford an extra credit card or car-loan payment one month, make the extra payment. Overall, just be sure that you make payments consistently every month to avoid a negative impact on your credit score.

In a perfect world, we could all cut down on eating out, eliminate the cost of renting, and have a perfect bundle of cash saved for buying a home. As we don't live in this utopia, there isn't a one-size-fits-all approach to budgeting. A smart budgeting plan is unique to each person's living and financial situation. Some ways to budget include: comparing car-insurance rates, negotiating service bills (i.e. cable, cellphone, or internet bills), canceling unused subscriptions, buying generic goods over brand-name products, and couponing when you shop.

Amid the chaos of working, taking care of your home and family, and talking to your mortgage lender and realtor, it can be easy to lose track of your goal and remember how much you have saved. Regularly look into your savings account to have an accurate idea of your savings. Visualize your goal and how far you've come with a vision board that includes a chart of your progress, as well as any pictures of your dream home and decor inspiration. When times get stressful, this type of visual motivation can remind you of your goal and keep you on track.

With a few thousand dollars saved, you may be tempted to invest some (or all) of what you have in order to earn more in the long run. While this is a good idea, be sure to know exactly when and how to get your funds when you need to. "By all means, have your money make more money, but make sure with the funds you invest, you know how long it will take to retrieve them," Hower advises. "Many people purchase with stock funds and market accounts, but you don't want to get stuck a week before settlement when cashing out your stock takes 14 days."

The homebuying process requires being cautious and careful about managing money and making purchases. After your offer is accepted and you are under contract, there are a few things you don't want to do to ensure you get to settlement. Hower strongly advises against doing the following, which will alter your debt-to-income ratio and potentially disqualify you from getting the loan.