Financial Help: How To Save Money To Buy A House

Saving the money you need to buy a home requires discipline, patience and a little creativity. If you dream of owning a home, review your budget to develop a savings plan that will help you achieve your goal.

How to Save Money to Buy a House

Becoming a homeowner is a dream that many of us hold dear. Regardless of your current financial situation, owning a home is a dream you can realize with discipline, planning and patience.

Following are some action steps you can take when you are really ready to stop wishing and start planning.

1. Decide on your long-term goal (e.g. save $10,000 toward the purchase of a home).

2. Look at your current budget.

Review your income and expenses over the last six to eight months (if you do not keep a check register you can also look at bank statements or even online account information).

Make two columns. The first should include your fixed/necessary expenses (rent, utilities). The second should list expenses that allow for more flexibility (telephone service, entertainment, food, etc.).

Decide where you can make adjustments. Some examples:

Room with someone to save on living expenses

Save money by scheduling an energy survey with your utility provider

Eliminate unnecessary telephone features

Clip grocery coupons, plan weekly menus

Abandon impulse buying (do not purchase anything that isn't in your budget)

Jog in your neighborhood rather than join the gym

Eliminate premium cable channels or eliminate cable entirely

Rent movies rather than go to the theater

Bag your lunch


Drink your coffee at home

3. Make a new budget

The budget should reflect your commitment to home ownership. It is a good idea to allow yourself a few dollars mad money so that you don't begin to feel deprived or discouraged. Outside of your mad money you should avoid any unplanned spending. Remind yourself that this is temporary plan to bring you closer to your goal. If it helps, chart your goal on paper or cut out pictures of your dream house and refer to them to keep yourself motivated.

4. Pay down current debt.

Your new budget should include a debt reduction plan. The money you save by spending with care should be used to pay off your current debt. This is where patience and discipline come in. You will not repay the debt overnight, but remember that you did not accumulate it overnight either. Use every available dollar (that includes the dollars you put in the vending machine for mid-morning snacks) and pay all bills in a timely fashion. You will pay off your debts. Whenever possible, pay as much above the minimum payment as you can each month. You will repay the debt more quickly and save on interest fees. There are several advantages to paying off debt before you shop for a mortgage. These include: Improved credit rating (your debt to income ratio impacts your FICO score, which in turn impacts the loan terms you will be offered and ultimately the amount of money you will repay to the lender. Another benefit is the savings you will realize. The longer you take to repay your credit card debt, the more interest you will accrue. This is money that could be better used for your home savings fund. (By the way, it is a good idea to order copies of all three credit reports now so that you don't have any unpleasant surprises later.)

5. Review your withholding allowances

By increasing your allowances you will keep more of your earnings. You can use this money to step up your debt reduction plan. Or, you may choose to keep your deductions as they are and use your income tax refund to repay your debts or save for your home. Talk with your financial advisor about the best course of action for your situation.

6. Open home fund

Once you have repaid your debts you can begin to save for your new home. It is a good idea to have the money debited automatically from your paycheck.

7. Look to other assets

If you have a 401k or 403b, you may be able to use a portion of these funds toward the purchase of your home. You should always talk with your financial advisor to be sure you understand the limitations and penalties involved, if any.

Consider selling any assets you may have such as stocks, bonds or your car.

8. Ask for help

If you have a birthday or another special occasion you will be celebrating, ask for contributions to your home fund in lieu of gifts.

Ask friends or family for gifts or loans to your home fund.

9. Check with your state or local government

There are a number of income dependent and/or first-time home buyer program available. These programs often provide down payment assistance and other help to buy your dream home. Make sure that you clearly understand all of the conditions of any help you receive. For example, there may be limitations or penalties if you decide to sell in three years.

10. Save a windfall

If you inherit money or receive a bonus, don't take a vacation or buy electronics, put the money in your home fund.

You can save money to buy a home if you make a plan and stick to it. You won't do it overnight, but you will do it with patience, discipline and time.

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