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If you tried to buy a home in 2023, you probably had a stressful experience. Home prices have surged both during and after the pandemic, and the Federal Reserve’s efforts to control inflation have caused mortgage rates to increase sharply.
If you had to hit pause on your homeownership plans, you may be wondering what 2024 has in store. While forecasts aren’t looking a whole lot better, interest rates are beginning to level off, which means a buyer’s market could be on the horizon.
If you haven’t yet, now’s the time to start making a plan so you can check “buy a home” off your 2024 to-do list.
How much should I save for a house?
How much you need to save will differ based on where you want to live and the kind of home you want to buy. Start by looking at the median home price in your area, which will give you a good idea of how much a house may cost.
Next, consider your income, expenses, and how much you can comfortably save each month. If you have a specific timeframe, divide your target amount by the number of months to determine your monthly savings goal.
Buying a home is less about the upfront price – unless you plan to pay in all cash – and more about finding a mortgage payment that will not stretch your income too thin. This mortgage calculator can offer an estimate of how your monthly payments will look based on how much you put down.
How much do I need to put down?
It’s generally recommended to put down 20% of the home’s purchase price. For example, if you’re looking to buy a house worth $300,000, a 20% down payment would amount to $60,000.
Making a 20% down payment allows you to avoid private mortgage insurance (PMI) costs. PMI protects the lender in case you default on your loan.
You’re not required to put down 20%, and some lenders accept lower down payments, often as low as 3% to 5% of the purchase price.
But remember that a smaller down payment often means a higher monthly mortgage payment and potential PMI costs. Plus, if you don’t plan to stay in your home long, it may not be smart to put less than 20% down.
“The transaction costs of selling are very significant,” says Greg McBride, chief financial analyst at Bankrate. “With a low down payment, you might not have enough equity by the time you’re ready to sell.”
Other homebuying costs to consider
The down payment isn’t your only concern, though. You need to consider closing costs, moving expenses, inspections, property taxes, and more.
Closing costs are fees associated with finalizing the purchase of a home and usually range from 2% to 5% of the home’s price. In 2021, average closing costs were around $7,000, though they vary widely by state. Closing costs include appraisal fees, title insurance, attorney fees, and loan origination fees.
It also costs money to move. Consider the cost of hiring movers, getting a home inspection, and making initial repairs or renovations. You’ll also need to purchase home insurance, which most lenders require.
Lastly, it’s always smart to leave enough of a cushion in your bank account to avoid the stress of a super-low balance. Owning a home is an accomplishment, but having a balance of $0 may prevent you from fully enjoying your new pad.
Where should I save for a down payment?
Mortgage rates are high — so you want to put your down payment funds in a savings account with interest to match. McBride recommends any aspiring homeowner find a high-yield saving account to help boost their bottom line.
The best high-yield savings accounts have interest rates as high as 5%.
“Every $10,000 you save can earn $500 in a savings account paying over 5%,” McBride says. “That’s the easiest $500 you’ll ever make, and it will certainly cover some of your closing costs.”
CDs can be a good option if you have a specific timeline for buying a house. CDs offer some of the highest interest rates, but your money will be locked in for a fixed period of time.
Choose a CD with a term that aligns with your savings goal. For example, consider a 6-month or 9-month CD if you want to buy in 2024.
A more flexible option is a money market account, similar to a traditional savings account but offering higher interest rates. These accounts often require a higher minimum balance but provide check-writing capabilities, making it easier to access your funds if needed.
4 steps to save money for a house
If you’re manifesting walking through your own front door in 2024, follow these four steps to save up to buy a home.
1. Set a goal
Saving for a house is like running a race: You need to create a plan to help you get there.
Have a firm number in mind of what you’re looking to stash away based on what you can comfortably save.
Try to keep it attainable. You still have to pay all your other bills, and you need some breathing room to enjoy yourself, too. Let’s say you set $20,000 as a realistic goal over the next 12 months. Now, it’s time to move on to the next step.
2. Automate your savings
Reaching your goal is a lot easier with automation on your side. Make saving a habit by setting up automatic transfers from your checking account to your dedicated savings account. This way, a portion of your income will be automatically saved before you can spend it. It’s an effective way to ensure consistent progress towards your savings goal.
3. Create a spending plan that helps you cut back
Take a close look at your income and expenses. Identify areas where you can cut back or save more.
Consider reducing unnecessary spending and redirect those funds toward your savings goal. Creating a budget will allow you to allocate money for saving towards your house.
At the same time, make sure you’re taking advantage of any surprise savings opportunities like a bonus, commission check, or holiday gift. Extra money means extra progress toward your goal.
4. Explore first-time buyer assistance programs
Being a first-time homebuyer comes with some major downsides. You don’t have any equity from another home, which means you can’t use any home profits. And you may be younger, so your annual earnings fall closer to an entry-level salary than a high-powered executive.
But these disadvantages can put you in the running for some help. There are many first-time homebuyer programs geared toward buyers with low- to middle-class incomes.
Start by checking with government housing agencies, such as the Department of Housing and Urban Development (HUD), as they often provide information on available programs.
Contact local housing authorities, non-profit organizations, and community development agencies in your area. These organizations can guide you toward specific programs that offer down payment assistance, low-interest loans, or grants.
Bottom line
Saving money to buy a home requires hard work and a commitment to stick to the plan. While the current housing market certainly isn’t a buyer’s market, start planting the seeds now for when the tides start turning in your favor.
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