Saving for a house is a lengthy process. With the median home price of $221,000 a 10% down payment is $22,000. Coming up with that amount of money is no easy task. And that is only 10%. If you save up for a 20% down payment, you are looking at over $40,000! It’s no wonder that saving for a house is the hardest part of the home buying process. Here are a handful of ways to help make saving for a house easier and some things to keep in mind to stay on course.
5 Tips For Saving For A House
Use Windfalls To Boost Savings
Everyone gets windfalls – tax refunds or a work bonus – throughout the year. The question is what do you do with this money? If you are like most, you spend it and then wonder that happened to it after that fact. If you want to buy a house, saving these windfalls of money will make a huge difference in how long you have to save for.
Take for example the typical tax refund of $2,500. If you put that in a 2 year CD that earns 1.25%, you earned $63 in interest. While that doesn’t sound like much, if you just keep it in a savings account you are looking at just $30 in interest.
Now let’s add in an additional $5,000 bonus you get from work. If you put that money in the same CD, you earned just shy of $200 in interest in those 2 years.
Find Ways To Make Extra Income On The Side
Aside from windfalls, look for ways to make extra money on the side. In the past, this typically meant getting a part-time retail job that paid $7 per hour. You can do much better than this.
Today, there are all sorts of ways to cash in on your hobby. You can use sites like Etsy to sell things or Fiverr to provide services to others.
Of course, you could do other things too to make extra money: mow lawns, dog sit or walk, rent out rooms in your house; these are just a few ideas. You can read this post for many more.
Earn A Return On Your Savings
Keeping the money you are saving for a house in a basic savings account isn’t the best move you can make. Instead you should look into a high yield savings account and bank CDs.
Here is your plan: start out by putting money into the high yield savings account. Once you get a few thousand dollars saved up, you can start looking into CDs. Before you move any money, just make sure you review what the interest rates are. As of this writing, some of the shorter term CDs are paying less than the high yield savings account, so it won’t make sense to move money into a CD.
But, if interest rates change, this strategy can make great sense. You will want to build up a CD ladder. Open up a 6 month, 1 year, 18 month and 2 year CD. All of the interest rates will vary which is the plan. You are looking to take advantage of interest rates. When the 6 month or 1 year CD matures, you can roll the money over into another 6 month or 1 year CD.
Of course you will want to take into account how long you plan to save for before buying a house. You don’t want to open a CD that will extend beyond this period because you will pay a penalty for cashing in the CD early.
Let’s look at how this strategy could look like. Let’s assume you have $6,000 saved so far. You open up 3 CDs with $1,000 each and leave the rest of your money in the bank account. At the end of two years here is how things look: