If you’ve been following the real estate market with even a modicum of interest over the last, oh, say, year-and-a-half, it probably hasn’t escaped you that home prices are only getting higher. Many prospective buyers are eyeballing low mortgage interest rates and wondering if now is the time to go ahead and purchase a home — but what if you don’t have a solid down payment saved up yet?
While it may seem daunting, it really is possible to save for a house in just 6 months. Together with top Houston-based real estate agent Andy Gleason of The Franklin Team, and a real-life homeowner who saved for their home in a short period of time, we’re sharing all the tips, tricks, and strategies for saving for maximizing your savings goals.
Step 1: Lay the groundwork
It’s tough to set a goal when you only have a vague idea of what you’re actually working toward. To create an actionable plan, you’ll need to move beyond just “saving for a house” and determine both where you’d like to buy and how much homes in your desired area actually cost.
“I always encourage people to talk to a mortgage professional in the beginning,” says Gleason. “You want to get pre-qualified, and you want to know what types of programs are out there so you can understand your goal and how to budget.”
A mortgage lender will go over your income and expenses to determine how much home you can realistically afford, and they’ll take a look at your credit history to see if there are any opportunities for brushing up your credit score. Knowing where you stand now can help you develop a strategy that will best position you for mortgage approval when the time comes to buy.
Gleason also says that it’s absolutely okay to speak with a real estate agent in these early stages, too — even if you think it might be too soon.
“If a loan professional or a real estate person doesn’t have the patience or the time to talk with you this far out, they’re not the right fit for you anyway,” Gleason says, noting that he has longtime clients who haven’t bought yet, and he’s still happy to answer the phone when they call with questions.
While a mortgage lender can help you assess your financial situation, an agent can help you understand home pricing and current market conditions. This is all valuable information when you’re trying to save for a house quickly, so don’t be shy about reaching out to professionals for their expertise.
Step 2: Understand your loan options
The discussion with your mortgage lender should include details on the types of loans you’re likely to qualify for. Different types of loans have different down payment requirements — which could mean you’ll be ready to buy even sooner than you think.
“There are some loan programs out there that can get you in for as little as 3% down if you’ve got the credit to qualify,” says Gleason.
Since loan programs are subject to change and can and do vary by region and qualifying factors (such as credit history, the type of property you’re buying, and so on), it’s important to speak with a professional about these opportunities.
You can get a head start by reading up on the Federal Housing Administration (FHA) loans page and exploring homebuyer programs in your state.To find even more specific information, try searching for “homebuyer programs [city, state]” to uncover regional offerings that may not be available everywhere.
Again, check with a mortgage expert for the latest requirements in terms of down payment expectations, but generally speaking:
- You’ll need at least 3.5% down for a FHA loan
- A VA loan may allow you to put zero down
- You can put as little as 3% down on a conventional loan
- If you use a conventional loan, plan on putting down at least 20% if you want to avoid paying for mortgage insurance
Step 3: Decide how much you want to put down
So you’ve talked with a mortgage lender and a real estate agent, you have an understanding of your local housing market and what types of loans you’re likely to qualify for — it’s time to assign a real number to this not-so-distant home purchase and figure out how much you intend to hand over as a down payment.
This number will be largely driven by the type of mortgage loan you’ll use, but can also depend on other factors — including what will work best for your personal circumstances. The more you put down, the smaller your monthly payment can be. And, as we touched on earlier, avoiding mortgage insurance usually requires coming prepared with a sizable down payment.
As a quick recap: Mortgage insurance is a policy that protects the lender in the event of the borrower defaulting on the loan. Though it offers a layer of protection for the lender — not you — and adds to your monthly payment, mortgage insurance can help you gain approval for a loan you may not otherwise qualify for, and it can be removed once you’ve paid down your conventional loan to a certain amount.
This amount will be specified in your loan documents and is absolutely a conversation you should have with your mortgage professional as you determine how much to save up as a down payment.
Step 4: Research down payment assistance programs
Once you’ve figured out how much you’ll put down on your new home, it’s time to look into down payment assistance. Your lender can help point you in the right direction toward a program that could be a good fit for you, but it’s worth doing a little investigative work on your own, too.
Because down payment assistance programs are often funded on a local level, you can start with a basic online search for “down payment assistance [city, state]” and see if anything sounds relevant to your situation as a soon-to-be buyer.
And don’t be shy about asking your real estate agent for insight — they work with buyers all the time and may have ideas about down payment programs that even your lender hasn’t thought of yet.
Step 5: Figure out how much you’ll need to save
Now that you’ve done your research on home prices, loan types, and down payment assistance, it’s time to finally assign a real number to your home savings goal.
At the risk of sounding like a broken record, this may be a good time to schedule another sit-down with your mortgage lender. Determining how much you actually need to save will depend on several factors, including:
- The cost of the house (or type of house) you want to buy
- Your current income and debts (credit cards, car payment, student loans, and so on)
- Your eligibility for down payment assistance and how much you’re likely to get
- Closing costs on your new home (in a hot seller’s market, you’re probably not going to be able to negotiate for the seller to pay for these costs)
- How much you already have in savings
- How much you want to put down, minimum requirements aside
It’s fair to ballpark closing costs at between 2% and 5% of your loan amount, but — no surprise — this can vary depending on region and market conditions. Ask your lender and real estate agent what they’ve seen as an average for buyer closing costs, and estimate on the high side to help avoid unpleasant surprises during the closing process.
Step 6: Create a separate savings account
It’s all fine and well to have a general savings account, but for a big goal like saving for a house in 6 months, it’s helpful to have a separate account to track your progress. Knowing that every dollar in that specific account is going directly toward your home purchase will be motivating and help keep you on track.
“Having something that shows you on a daily basis what you’re working toward helps you understand that every dollar counts,” says Gleason.
Step 7: Automate deposits into your savings account
Since we’re on the subject of your bank account, go ahead and set up automatic transfers into your home savings account. Whether you do this on a weekly or monthly basis is up to you, but having your money moved directly into savings — rather than logging in and transferring the funds manually — will help avoid any temptation to use it elsewhere.
Gleason explains that when he and his wife were saving for their first home, direct deposits into their designated savings account made a big difference.
“If that money went into our checking account, we’d think, ‘Oh, we have an extra $500 over here,’ but because we set up that direct deposit, we didn’t see it and we weren’t even tempted by it,” he says.
“Everyone has a different lifestyle, and you have to find a strategy that works for you, but when you’re saving as much as you can — again, every dollar counts.”
Step 8: Freeze entertainment and luxury accounts
Dollars do add up, and eliminating optional expenses is a great first place to start cutting back.
If you’re currently subscribed to multiple streaming services, consider cutting back to just one. Or, better yet, can you drop all of them and temporarily borrow a friend’s login for your favorite service?
The same goes for other optional subscription services, including beauty boxes, razors, pet toys — you get the idea. If it isn’t an essential, freeze or cancel your subscription until you’ve met your savings goals.
Other recurring expenses you may not be thinking about might include:
- Gym memberships (can you switch to at-home workouts for a few months?)
- Meal prep kits (take what you’ve learned from the cooking kits and apply those tips to your grocery shopping!)
- Software updates (ignore this if you need a certain program for work purposes, but if you’re paying monthly or annually for the latest version of a service that you can still use in an older release, pause that auto-renewal)
- “Free” trials you may have forgotten to cancel before the monthly fees kicked in
To catch any other extraneous charges, log into your bank account, scroll through the last three months of debits, and cancel anything you can live without. Be ruthless!
Step 9: Tighten your belt
With a major savings goal, cutting back on expenses shouldn’t be limited to luxury subscriptions. It’s time to cut back everywhere. That said, it’s important to be realistic.
St. Louis, Missouri, homeowner Christina Musgrave explains that when she and her husband decided to save for a home, they began with an honest look at their spending habits.
“We started by analyzing our spending over the last 6 months and made reasonable predictions on what we would each spend per month. We cut back on things like eating out, shopping, and unnecessary purchases during this time.”
The same was true for Gleason and his wife during their period of saving for a house while renting.
“The first thing we did was go out and buy a $19 coffee maker and started drinking cheap coffee at home,” he says, echoing a common refrain in the personal finance world. Fancy coffees — though certainly a perfectly acceptable treat from time to time — really do add up in terms of dollars that could be going toward your own home instead.
Remember, it’s your lifestyle and ultimately your choice when it comes to slashing expenses. How far you cut back will depend on your income, essential expenses, and how quickly you’d like to save for your house. For many of us, the goal of buying a home within 6 months requires a significant lifestyle shift — but those who’ve done it successfully say that it’s worth the sacrifice.
“Some of these things are a little painful in the beginning,” admits Gleason. “But you get used to it and, gosh, you can really save a lot of money quickly.”
Step 10: Find a side hustle
Since your ability to save is limited after a certain point (some expenses simply cannot be reduced or eliminated!), it may be worth considering if there’s a way you can increase your earnings — even just for a few months.
For some, this might look like a part-time job. Perhaps you’re waiting tables three nights a week, or maybe you pick up a weekend gig at your favorite retail shop. For others, an increase in earnings could come from taking on additional clients on a freelance or consulting basis.
If you’ve been in your current position for a while, is it time to discuss a raise in pay? If you work for yourself, can you increase your rates? Do you have a hobby you could potentially monetize? Whether you bake beautiful cakes, knit one-of-a-kind items, have an eye for photography, or could teach swimming lessons — if you can earn a few bucks for doing something you enjoy, those additional funds could be channeled directly into your house savings account.
In Musgrave’s case, she was able to grow her existing food blog into a viable source of income to supplement her savings goals.
“I already had my food blog and had wanted to expand it for a while,” Musgrave explains. Along with her blog, she also had a few freelance recipe development and food photography clients.
“I started by asking if my existing clients needed additional work — this helped to quickly increase my income. Then, I reached out to a variety of other food brands and potential partners to see if I could offer my services.”
By leveraging the skills and platform she already had in place, Musgrave was able to boost her earnings and bring in additional cash each month to expedite the plan she and her husband had put into place.
“Having an existing side business that I could expand was a big game-changer in meeting our savings goals,” says Musgrave.
Step 11: What can you sell?
If you’ve ever thought about having a garage or yard sale, now is the time!
Even if you don’t have an event-worthy amount of items to clear out, take a look around your current home and see if there’s anything you’ve either been meaning to sell, or could potentially part with for the right price.
Furniture, musical instruments, equipment from a former sport or hobby, clothing and accessories from sought-after brands, or collectibles across a wide variety of genres could fetch more than you might think on platforms like eBay, craigslist, Nextdoor, Poshmark, and even Facebook.
And remember: Anything you sell now is just that much less you’ll have to pack when it’s time to move!
Step 12: Can you find a roommate?
While this is definitely not a one-size-fits-all strategy, if you do happen to have a spare room that could be rented out on a short-term basis, you can easily add hundreds of extra dollars to your house savings account.
If a round-the-clock roommate isn’t right for you, an Airbnb approach may be an option if you live in an area that sees frequent out-of-town visitors.
Step 13: Consider pausing retirement contributions
Depending on market conditions — both in terms of housing and investments — it could be financially worthwhile to temporarily reduce or pause your retirement contributions in favor of directing that money toward your house savings.
“I recommend talking with a financial advisor and really figuring out, ‘OK, what are my expected goals, what can I expect (based on the market) for my home to appreciate in the next five years, and what will I lose by doing that?’” says Gleason. “For some people, it does make sense.”
Tampering with retirement funds can be risky, so be sure to gather as much information as possible from trusted financial experts if you’re considering this path to increasing your savings.
Step 14: Polish up that credit score
When you’re hyper-focused on saving money, this can — potentially — be a great time to double-down on efforts to improve your credit score.
You’ll almost certainly have gone over your credit history in detail when you spoke with a mortgage lender in the early stages of your savings journey. After all, the better your credit, the better deal you can get on your mortgage in terms of lower interest rates.
According to Equifax, a credit score of 740 and above is considered “very good,” while 800 and up is an “excellent” score. If your score has room for improvement, you probably already have an idea on what you can do over these next 6 months to improve your credit, but paying bills consistently and on-time is always a good move.
Step 15: Call in the gifts!
It should go without saying that any windfalls of cash — such as a workplace bonus — should go directly to your house savings account. But if there’s anyone in your life who might be inclined to gift you some money out of the goodness of their heart, now is the time for them to go ahead and open those wallets.
If you’re using gifted cash, the lender will want to confirm that the money is coming from someone close to you (like a family member or spouse) and can be verified as a gift — not a secret loan. You will likely even have to provide a letter from the person who gave you the money confirming that it is indeed a gift, free and clear, and won’t require repayment.
If, for example, you usually earn $4,000 each month and have a sudden deposit of $15,000 into your account, you may be asked to explain and verify the source of these funds.
The earlier you can round up any financial gifts, the more time you’ll have to ensure that everything is above board and won’t cause delays when it’s time to process your mortgage application.
Step 16: Be diligent and enjoy your new home!
It might be tough, but sticking to your savings plan can mean the difference between continuing to rent indefinitely, and sitting at the closing table signing off on a home of your own.
The basic recipe to fast savings may be to cut expenses and increase your earnings, but the real key is consistency and accountability.
“Making a really clear plan on how we would make the saving happen, and then executing on that plan was extremely helpful,” shares Musgrave, who set up a detailed income and expenses spreadsheet at the beginning of her savings journey with her husband. Together, they had a monthly check-in to maintain an understanding of their progress.
“This allowed us to make changes to the spreadsheet — or our behavior — to make sure we were on track to meet our goals.”
Header Image Source: (katie manning / Unsplash)