How to Save for a House with Outrageous Housing Prices

The average home price in the United States hit $428,700 in 2022 — a 30% increase from 2020. With housing market prices setting unbelievable records, becoming a homeowner can seem like an unattainable dream for millions of Americans.

Couple the housing market issue with an increased cost of living, including steep rent, and saving for a house is an uphill battle. So, what's a hopeful homebuyer to do in this kind of economic climate?

How much should you save before buying a house?

The amount of money you’ll need for a down payment varies depending on the type of loan you get. In general, though, most lenders require anywhere from 3% to 20% of the home purchase price as a down payment.

For example, an FHA loan — one that is insured by the Federal Housing Administration — allows down payments as low as 3.5%. This means that to qualify for a $225,000 home, you’d need $7,875 for the down payment.

Certain types of mortgages don’t require a down payment, such as a USDA loan. You may see these referred to as zero-money-down mortgages. These options are generally reserved for first-time homebuyers who meet unique criteria, but they’re worth exploring if you think you’ll qualify.

Tips to save for a house

We have a few suggestions that may help you save for that mortgage down payment.

Live below your means

You’ve heard it before, but what does “live below your means” really mean?

Living below your means is all about spending less money than you make. It’s a financial skill set that involves avoiding unnecessary debt and making smarter purchase decisions, such as prioritizing items you need and going without those you want.

It doesn’t mean you can never spend money on things you enjoy or take out a personal loan to cover unexpected, big-ticket costs like a medical procedure or car repair. Still, you do have to practice a certain level of financial discipline.

Avoiding impulse purchases is a good place to start. When you spend less on things you don’t need, you can put that money toward a much bigger goal — like buying a house.

Start tracking your spending habits to see where you can cut unnecessary expenses. It may be as simple as choosing cheaper brands, switching mobile carriers, couponing, and resisting the urge to click shopping ads.

Increase your income

If you don’t think you make enough income to save for a down payment, consider ways to bring in more money.

Getting a second job isn’t realistic for most busy families, but it’s an option for those able to fit it into their schedules. Plus, thanks to the bustling gig economy, it’s easier than ever to pick up flexible jobs that give you the option to work your own hours. For example, you might consider running food deliveries, being a personal shopper, or offering freelance services a few hours a week.

Other ways to increase your income include:

• Asking for a raise
• Working toward a promotion
• Switching jobs
• Expanding your skill set to qualify for a higher-paying position

In fact, this may be the perfect time to go back to school or take a certification course!

Consider a move

Housing prices have been rising all over the country, but some geographic areas are more expensive than others. If you live in or near an outrageously priced city, research surrounding areas for more affordable housing options. Adding 30 minutes or even an hour to your commute may be worth it if you’re looking to buy a home.

Alternatively, moving to an area with a more expensive cost of living could give you access to higher-paying jobs. Uprooting your life to meet your savings goal may sound extreme, but it could be your ticket to homeownership.

Consolidate debt

Getting your debts under control will go a long way toward saving money for a new home. Although taking out a new loan to get out of debt seems counterintuitive, debt consolidation can be a smart move when trying to simplify your debts. In some cases, you may even reduce your monthly payment amount, which is money you can put in savings for your down payment.

Debt consolidation is when you take out one loan to pay off multiple debts. For example, you might get a personal loan and use the money to pay off several credit cards.

Reducing your overall credit card debt is smart for any potential home buyer, as doing so can help improve your credit score and make it easier to qualify for a mortgage.

Improve your credit score

It goes without saying that you should try to boost your credit score as much as possible before buying a home. Improving your credit means you’ll get a better rate, which ultimately translates to a lower mortgage payment.

If your credit score needs work, there are a few steps you can take to give it a quick boost.

Aside from paying down debts, ask for credit limit increases on credit cards and personal lines of credit. Just don’t max out your credit, however, as the more available credit you have, the bigger the boost to your credit score.

Another simple way to improve your score is to clear up disputes or outdated items on your credit report.

For example, let’s say you have a decade-old medical debt that you couldn’t pay, which was charged off eight years ago. You’ve heard that charge-offs remain on your credit report for seven years, but this one is still listed more than a year after it should have been removed. You can dispute that old medical debt by submitting the required forms and documentation to each credit bureau.

When saving money for a house down payment, you should check your credit report at least once a year to know where you stand.

Advance America can help you work toward your financial goal

So, when will housing prices drop? It’s anybody’s guess. Whether the housing market continues its upward trend or experiences a slowdown, home prices aren’t likely to cool anytime soon.

In the meantime, you can focus on your goal of saving for a down payment by reassessing your family’s expenses, improving your credit score, and reducing debt. And, if an expense arises and you don’t want to pull from your home-buying savings fund, we’ve got your back with in-store and online loan options to meet your financial needs.

With a little extra effort and planning, you’ll be on your way to homeownership in no time!