How to Save for a House

I have my own recommended formula for how to buy a house and it's worked well for me. Or maybe I should say it "worked" well for me since I now own my house with no mortgage. It's not a mansion, but it's a nice place in a good neighborhood, and it's paid for.

As I look back on how we saved for the downpayment, got the mortgage, made extra payments, etc., it doesn't seem like it was that hard. It took spending less than we earn (something many Americans find difficult to do) and using that money to pay off the debt. The only other thing it took was time. It didn't happen overnight.

This piece from Money says what I have learned: saving for a house ain't that hard. It tells how you CAN save for your home's downpayment if you apply a few, simple money techniques. Their list:

• Look at what you spend each month, and imagine what you would do if you had, for instance, $150 less at your disposal next month. You'd adjust.

• Next, take advantage of the greatest invention since the Post-It note: an automatic investing plan. Open an online savings account (look for a rate of 4.5 percent and no minimum balance) and arrange to have that $150 deducted from your checking account at regular intervals - timed, for example, to coincide with when you get paid at work.

• After a month, you won't miss the money. Honest.

It seems like it's just too simple, but it is this easy. Now, yes, you have to make up that $150 in savings, which shouldn't be that hard. For instance, you could cancel your cable TV, cut your car insurance costs, take steps to save on gas, work at saving $300 a month or do any of the ga-zillion money saving tips listed here at Free Money Finance. The choice is up to you. People do it all the time.

And while this piece focuses on getting the money for a downpayment, the principles work for paying off your house early as well.

Comments

[Kristin]

I know, first hand, how stressful it is to save for a home. I’m saving for a down payment, too. Now is the time to buy, right?

[Everett]

Oh yeah it is...i was just approved for a $200,000 loan at 5.7% interest...i live in GA

[Just My Life]

Is it better to save for a down payment or save for the entire house before you start looking ? I recently came into a bit of money I normally don't have.

[FMF]

Just --

Are you asking what the best thing to do with some extra money is? If so, we'd need some detail before being able to answer that question.

[I want a house!]

How much money should you really save for a downpayment? Should it be 10% of the home's cost. For example a 600,000 house would be $60,000 down payment. Is the 10% just for a lower mortgage rate? Also, how long is a mortgage? I heard only 35 years is the maximum.

[Al]

So where is this 4.5% interest rate online savings account? I sure haven't seen it.

[Dan]

Al,

The original post was June 2010; back then Savings rates were a *lot* higher. To meet or beat that rate in the current market, look into Rewards Checking accounts (takes some work and commitment) or investment accounts (higher risk).