Your Guide On Saving Money To Buy A Home

Certified Mortgage Advisor
NMLS 1701021
July 2, 2021

How to save money, buy a home!

Welcome to your guide on saving money to buy a home. Now, I'm going to walk you through, how do you save money. How do you create a plan to actually save money instead of going into this blindly, and also give you a tool to figure out how much money do you actually need to pay when you do look at buying a home.

Danger of going blindly

So here's the danger of going in blindly. Far too often I see people, they have this goal that they want, but the actions that they're taking right now aren't in alignment with that goal. So what ends up happening is it's just this frustration that actually leads nowhere. So if you don't create a plan for saying, I know this is where I want to go, and this is the plan to get me there, then you're never going to end up in that place.

The formula that you need

So here is the magic formula to figure out what your savings need to look like, or what that plan for your savings needs to look like. We first need to know these four things before we actually create a plan, we need to figure out what our down payment is, what our closing costs are, what our reserves are going to be, and then how many months until we plan on purchasing this home.

Down payment

We need to figure out what our down payment is. We can look at the minimum down payment of each type of loans like conventional FHA, VA, and USDA. So the minimum down payment is 3.5% on all these loan programs.

Closing cost and Reserves

Then with our closing costs, I'm gonna show you a calculator to figure it out. Reserves as what you're comfortable with having leftover after you buy a home, right? You don't want to just buy a home and then just be drained in your bank account. Then you won't have money to move in to furnish, to live after you move in and you want to have some money leftover.

So how much do you want months reserves or a number of payments leftover in your bank account? So if your monthly payment is 1000 per month, one month reserve is $1,000. Two months of reserves are 2000.

Months to move in

Then, the months to move in are you going to plan on moving or buying a home within the next two years, three years, five years, six months, that's going to help you structure how much you need to save a monthly to be able to get there.

Intention vs. Automation

What this really comes down to is that intention is so much better in my opinion than automation. So many videos about savings are always talking about you need to automate your savings, go throw it into this other account and, take all the extra change and go put it in a separate account.

It might help save a little bit of money, but we need laser focus intention to actually be able to save this large amount of money. It's not going to happen by accident, right? If you need $30,000 to buy a house, it will not happen by accident. And it will not happen automatically.

Intention = Solid plan

In my opinion or experience, you need intention. You need a solid plan, to get you there. That way you can feel like you're on track. You're on pace with actually being able to achieve this because automatic trickles of money are not going to get you where you want to go.

Protect your money

What you want to do is while you're saving, you want to save this money in a money market or high yield savings account. And the goal here is to protect it, not invest it. I know you could go Yolo this into some sweet game stop or AMC or whatever you want to do, but that risks the money taking a downturn. Even if we put it into safer investments, like even just like a mutual fund or an index fund has the risk of going down and we don't want you don't want to save all this money over a period of months. Then, when you want to pull it out, it actually has lowered in value.

Closing Cost Calculator

So let's take a look at this closing cost calculator, here's the link: This is going to be really good for you to get a solid idea of what kind of cash is going to be needed at closing. So this is going to give you a good closing cost estimate.

A walkthrough

Now you really want to talk with a lender to get a fully accurate quote, because again, this is just an estimate here. But this is one piece of the puzzle. Like we talked about in that formula. So you can put in, your location, your home price, your down payment, and then based on a mortgage amount and the type of loan that you have, it will show you the closing costs and know actually break those down in detail, if you want to see those. For instance, I can see here, cash needed at settlement.

We'll include it of a down payment is $18,524. All right. And that's a working estimate again. Talk with a lender to be able to get a good breakdown and a lender will help you explore things like seller credits, and if that can help you lower those costs as well.

So, 18,524. what I can do is take that and put that into my calculator. If I know that's exactly how much I'm going to be spending every month, let's say leftover. I want to make sure that I have a kind of a cushion of, let's say $2,000 to some padding in there for extra expenses. That's my reserve budget. What it would then be is $20,525. So let's say what that's, what my total cost is at the top of that formula.

Now I need to divide that by how many months it's going to take me until I want to buy a home. So let's say I want to buy a home within the next two years. So I'd take that number and divide it by 24. That's 24 months over two years. So I need to save $855 per month to meet that target. So within 24 months, if I saved $855 a month, I'll be right there. And if that doesn't work. You have got to change these numbers and then you can figure out what your plan looks like by changing these different variables.

So if that's too high, maybe I need to push that out maybe six more months or, maybe 12 more months, or I need to figure out how do I lower this down payment. How do I lower the closing cost? How do I get credits? Are there other ways that I can get some money in there to accelerate that savings or shorten the timeline?

Explore and consider other special program

For instance, I have a video on Bank of America is a down payment and closing cost assistance. I'm not hearing to endorse it. I don't have any sponsorship with them but explore those options. It's worth taking a look. Look at the other options that you might have available in your market.


Do some research to see, if there are ways that I can change some of these variables so that my timeline is exactly where I want it. And maybe this is on par for you? You're like 855 bucks. Great. I can do that. No problem. And if so, that's fantastic. And there you got there as your plan.


I know that budgeting is the last thing that you want to hear, because I'm sure if you're looking at saving money, so many people are talking about budgeting, but it is wildly important.

Zero-based budgeting

And what I mean by budgeting is not expense tracking, too many like budgeting apps. Just tell you how much you spend each month and that didn't really create any actionable insight into what's happening with your budget. You actually need to be able to understand, like before you make the purchase, can I make this purchase?

That's what zero-based budgeting is zero-based budget. It's actually budgeting money in your bank account rather than anything. Because income is actually a future metric. It's something that hasn't really come to us yet. We need to only budget the money that we have directly in our position that we can handle.

So what you do with zero-based budgeting is every dollar that you get, you assign it, a job, you sign it a task. And so if I do that, I can set aside things for, I have this much allocated for groceries, this much allocated for heating out this much allocated for saving for a home, this much allocated for retirement.

So when I go to eat out, I can look into my budget and see, I only have this much money to eat out. Then I can make a better-informed decision on if I can actually purchase this or not. Otherwise, you look at your bank account and it's one number, either big or small, and you're like, I can afford this. But all that money you don't realize as being as actually should be saved for another job in the future.


An app called You Need A Budget. It's really great, and Every Dollar is great as well. I personally use You Need a Budget. I think it's fantastic. And it's a wonderful zero-based budgeting option and budgeting is important. No matter if your income is on the lower end or on the higher end, if it's on the lower end, you're likely tracking these day-by-day expenses on these little things add up into big things.

If you have a higher income, you still need a budget to be able to track some of the bigger moves that you're doing. Maybe you're not so concerned about how much you spend on a coffee in the morning and that's okay, but you still should be really concerned about where's your money going for retirement? Do you have money for this down payment? Do you have money for the repair cost? If you can So there is no way around doing this.

There is no magic trick to this. I wish there was. But it really is going to come down to these three things. Get your monthly savings, target, increase your income and or lower your expenses.

Get your monthly savings target

There is no way around these things, right? Find out your monthly savings target. If you're not happy with it, increase your income, lower your expense. Those are the only options.

Increase your income

There is no magic trick or solution to this increase. Finding other jobs, finding a higher paying job, getting a second job selling things like there are all these different ways that you can increase your income. And it's perfectly within your power to be able to do that.

Lowering your expenses

This is also gonna be inclusive of finding other programs on ways you can lower the down payment, lower closing costs by getting seller credits, figuring out other cheaper lenders. You can work with it. What are these options that you have to be able to lower these expenses if you need to.

Things to consider

So here are some things to consider that may not apply to you specifically, but they may as well.

Paying up high interest debt

If you pay up high-interest debt, it could help you save more monthly. There are a lot of people that have high-interest credit card debt, and often the monthly payment that you're paying on it is pretty high considering what the balance is.

You might have a $5,000 balance, but the payment might end up being a few hundred dollars. And so what would happen if you paid down that first? Now you can accelerate your savings a lot quicker with that $200 per month.

Downsize temporarily

Could you downsize temporarily? Could you trade-in your car, sell your car for maybe something that maybe has a lower payment. Could you downsize your lifestyle a little bit? I think the answer for quite a few people is, yeah, there's a lot of things that we could do to downsize. If you have the option, is it possible to live with somebody? I'm a single guy, so I can go live with friends. If I ever need to downsize and save some money.

Is that an option for you? Like in a lot of metropolitans? It's very common to have roommates, even as adults. I know it's not a dream and it's not ideal, but what are you doing? Are your actions aligning with your goals in the future? And if they're not. Then we can only complain for a certain period of time until we start to get and realize that we need to start aligning our actions with what we really want to happen in the future.

And for some people they have the luxury and the privilege to be able to say this is a lot easier than for other people. I totally get that. But we all have to deal with what we've been handed and say, what can we do to make sure that we have this goal that we want in the future, what can we do with our actions what's available in front of us?

What can we do? What can we learn? What can we actually put into place to get to where we want to go? And sometimes that's going to include maybe doing some things that aren't the most ideal for a temporary period of time until we can build up to the place that we want to go.

Can you extend your commute and find a cheaper location?

For a lot of people, you can extend your commute by maybe even 15 minutes and be in a much cheaper location, which is going to lower your down payment, lower your closing costs, and all of that to shorten that timeline for you. If you want it that way, you don't have to live downtown. You don't have to live in these high expense areas.

You can extend your commute. And I know there are some places that still, you have to be far away and these outliers are not the rule. For most people in the US, you can extend your commute and find cheaper places to live.

New job or another job

Can you get another job, whether it's a temporary, higher-paying primary job or a second job? Shoot, you're watching videos on real estate right now. Have you considered looking into working in real estate there? Plenty of people who within their first two years of working in real estate make a hundred thousand dollars a year, or there are plenty of people who do real estate as a side job.

And they sell a home every few months and make a few thousand dollars doing that. This is an option, do things that are within your skillset. You're already learning some about real estate. It's an option to explore, to figure out how you can get some more money for a house in the future.

How do you spend your money?

Then also consider how are you spending money from things like bonuses, gifts, any items, large ticket items that you sell, or your tax return, where are you putting this money into? If you get that thing like that in the future, could you be allocating that more towards the goal that you have for the future?

Spend wisely

I know too many people who take, just take their tax return and they think it's like free cash to go was spend on whatever they want. I'm like, that's your money, that's yours. You can go be a little bit smarter with it. Then you know, if you don't have the money for a vacation, just cause you to get some money that comes in. It doesn't mean you necessarily should probably go on a really expensive vacation. Maybe we put some of that into some savings or work towards a longer-term goal that you might have.

Shift your mindset

Then finally, consider shifting some things with your mindset.

Your actions have to match your goals

If you say that you want this. Don't just back it up with thought and with telling people about it back it up with actually doing the action and actions usually are not super enjoyable to do. They're going to take some work and some energy to be able to get there.

slow down your timeline

Slow down your timeline and way down as well. Don't feel like you have to go purchase this awesome home. You have this idea of purchasing a home and your mind immediately wants to be like, great I want to go buy a house. Now, if you can, that's perfectly fine, but if you can't that's okay too.

Chill, create your own pace

Just slow it down. Don't put so much pressure on yourself and having no plan creates tension and stress for a lot of people, they say, I want to buy a home, but then they don't have a plan and they assume they have to buy it now. And all of a sudden they're in this stress and this frustration and everything is against me.

If you're in that spot, you're saying, I can't buy a house now, okay, that's fine. What's the plan then? What are we actually going to do? What are we going to put into place? What are the numbers here? Let's figure that stuff out now so that everything falls a little bit more into line as you're working towards it.

Don't keep up on expensive areas

Then also this one's huge. Don't play the game of keeping up with high expense areas because I know guarantee always happens in the comments I'm going to be well, this doesn't apply to this place in California. This doesn't apply to whatever. Don't live there. I know that some people want to live in these areas. That's great. But if you can't afford it, you can't afford it.

I'm sorry. I don't know what to tell you. Like I get it. I want to live in cool places too. But I don't, I live in a lower cost of living area, and now I have money to be able to go travel to wherever I want to.

You might have a job there. You might have family there. These things all can change. I know it's not, it might not be within things that you want to happen, but you can live in a lower cost of living area. A lot of the US has areas that are a low cost of living, and guess what I'm doing okay. I'm living in Dayton, Ohio, and I'm having a pretty good time here.

Like you'll be okay. Not living in a high cost of living area, if you can't afford it. If prices are just skyrocketing faster than you can keep up with savings or you're already like, there's no way I'll be able to ever afford that, then we need to come in line with what our goal is.

Create your own solution

What we actually want to happen if I do want to purchase a home, then either need to figure out how do I increase my income to be able to purchase it in this area? Or how do I lower the cost or somewhere else that I can live, that I can still thrive and have an enjoyable life, and my family can live well without me feeling this friction all the time of this area growing too fast for me to keep up with?

You don't need an IG worthy home right away

You don't have to have a cute Instagram home, your first home, especially does not have to be this super cute thing that you get to post pictures online. I know that's a lot of the pressure that we see as we see other people buying homes. It's oh my gosh, they have such a cool home. How did they get this as unfair? I get it. Cause I'm at the age where so many of my friends are, they're getting married, having kids buying homes, and I'm sitting over here, like. All right!

This is of internal work that you're doing, it does not have to be this super cute thing. That is the dream home right upfront. It can be a stepping stone. They be, this is the house that I got, so it can build up some equity. I do some, light renovation to it. And then over a period of time, then it grows some equity. I can then use it to buy a home that I do want in the future. We don't have to all get it now in the very beginning.

Slow down, plan first

It's perfectly okay to slow down, get a plan in place. That's going to help you understand what to do on these next steps. So you don't feel overwhelmed and stressed when you're looking to save money to buy a home.

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