• The first step in saving for a home is determining how much money you need to save, including for a down payment and any closing costs.
  • Different mortgage types may have various down payment requirements. Some mortgages allow eligible borrowers to pay no money down.
  • To help quickly reach your homebuying goal, consider budgeting, earning extra income, and cutting back on unnecessary expenses.
  • Having a savings account that pays a relatively high interest rate may help you meet your goals sooner.

Saving money to buy a house can seem daunting, especially when you're a first-time homebuyer. However, by determining how much money is needed and creating a feasible plan for reaching that goal, you may find saving for a home to be a straightforward process.

Let's examine how to save for a house and some hints to help you reach your goals faster.

Determine Your Savings Goal

The first step in saving for a home is to determine how much money you need.

When buying a home, most choose to get a mortgage and pay off the costs of homebuying over time rather than paying the full list price upfront with cash.

That said, the mortgage lender will determine how much house you can afford based on how much you can realistically pay each month.

Before beginning the home-hunting process and applying for mortgage preapproval, consider using PNC's Mortgage Affordability Calculator. This calculator factors in your income and debts, creating a general estimate of how much house you may afford. Once you've determined the maximum mortgage payment you can afford, it's a good idea to only look at houses that fall within the price range.

Even with a mortgage, there are costs that must be paid at the time of purchasing a home. Let's go over them.

Down Payment

Your biggest expense will likely be the down payment, the money you must pay upfront to buy the house.

The amount you'll need to save for a down payment may vary. Traditionally, homebuyers have been advised to pay 20% of the total cost of the home for a down payment.[1] However, many buyers do not pay that large of a downpayment. According to the National Association of Realtors (NAR), the average down payment for first-time homebuyers in 2023 was 8%.[2]

In addition, special kinds of mortgages may allow you to pay even less as a down payment. They include:

  • Federal Housing Administration (FHA) loans: As low as 3.5% of the purchase price[3]
  • Department of Veterans Affairs (VA) loans: No down payment required for eligible applicants[4]
  • U.S. Department of Agriculture (USDA) loans: No down payment required for eligible applicants on homes in eligible areas[5]
  • Specialty mortgage loans: Some lenders also offer specialty lending options featuring low down payment requirements, such as the PNC Community Loan, which requires a down payment of only 3%, with as little as $500 in cash needed from the borrower’s personal funds.

In addition, some conventional loans also allow homebuyers to contribute less than 20% as a down payment.

Of course, the higher the down payment you can afford, the less of the purchase price that will need to be financed. It may prove a good idea to save for as much of a down payment as possible to lower the interest charges on a mortgage.

For example, if using a conventional loan — one that isn’t insured or guaranteed by the government — with a down payment of less than 20%, you’ll be required to pay for private mortgage insurance (PMI). By paying 20% or more upfront, you save money by not having to buy PMI.

Use PNC's Down Payment Calculator to see how much money you can save on interest by paying a higher down payment.

Closing Costs

When buying a home, you'll also likely have to pay some of the closing costs of the transaction. These are the fees and other expenses that you will need to pay as part of the homebuying process. Some of these costs may include the following:

  • Home appraisal
  • Credit report
  • Title services
  • Title insurance
  • Origination fees
  • Tax services
  • Transfer taxes
  • Recording fees
  • Surveying

On average, expect to budget 2% to 6% of the loan amount for closing costs. You may want to use PNC's Closing Costs Calculator to determine how much these costs may be.

Other Expenses

In addition to down payment and closing costs, there will likely be other costs associated with buying a new home. These include moving costs, storage costs, and repair costs, among other expenses. You may also want to save additional funds to buy new furniture or appliances for the home.

These expenses will vary. However, it's important to anticipate these costs to get a complete picture of how much money you need to save.

How To Save for a Home: Strategies

Once you’ve identified a savings goal, it's time to get serious. Here are some strategies to use to reach your target quickly.

Create a Budget

The first step in reaching a savings goal should always be to create a budget. Creating a budget may help determine how much money you can afford to put aside in a savings account every month.

Although numerous apps promise to help you create — and stick to — a budget, there's no need to purchase any technical tools. In fact, creating a simple budget spreadsheet may be just as effective.

No matter which method you choose, determine how much income the household receives each month and subtract the regular expenses. Be sure to include food and transportation costs, as well as rent and utility bills. You may determine to save a portion of the leftover money every month.

PNC offers a digital home lending tool that allows you to build a budget. Using the tool, you can input financial information, including basic living expenses, savings and retirement goals, taxes, and recurring debts and obligations, to find an affordable monthly home payment that works within your budget.

Cut Back on Unnecessary Expenses

When saving for a major purchase such as a home, it may be helpful to stop spending money on unneeded purchases. This may include meals and drinks at restaurants and bars, brand-new clothing, and subscriptions for unwatched streaming channels. You may be surprised to find out how these unnecessary expenses add up.

Save Any Windfalls

When saving for a house, it may be helpful to earmark any financial windfalls for the cause. These may include work bonuses, lottery or prize winnings, inheritances, and insurance payouts. It may be best to tuck any unexpected windfalls immediately away into a down payment fund to avoid the temptation of spending them on nonessentials.

Boost Your Income

Along with saving how much money flows out, increasing the amount of money that flows in may prove just as important when saving for a home.

Consider making extra cash by performing freelance or contract work on the side, selling unwanted clothes and items, or starting your own side business.

Choose the Right Savings Account

When saving money for a major goal, such as a new home purchase, having the right savings account for your needs may be a key to success.

Compare savings accounts to find one that pays a high rate of interest. You'll typically see this expressed as the account's annual percentage yield, or APY. This is the amount of money that your principal (the deposited funds) will accrue over the course of a year.

You may be able to find an even higher-than-average APY by choosing a high-yield savings account. These accounts may have a higher APY than a traditional savings account — helping you reach your goals sooner.

You may also want to consider putting your money in certificates of deposit (CDs). A CD is a type of savings account that typically pays higher rates of interest than traditional savings accounts. However, in return for the higher APY, you will be required to leave your funds in the account until a predetermined date. If you withdraw funds from the CD early, the bank may charge a penalty, such as the forfeiture of any earned interest.

When considering savings accounts, it may be beneficial to find one that allows for automatic transfers. With this option, you can set up your checking account to deposit a certain amount of money in a savings account regularly. You may decide to set up automatic transfers on a weekly or monthly basis — or at any other pace that best fits your needs.

In addition, your employer may be able to split a direct deposit between a checking and a savings account to make saving money even easier.

The Bottom Line

Saving for a home doesn't have to be intimidating. Sticking to a budget, earning a little extra income, and even choosing the right savings account may all help you reach your goals quickly.

In addition, there are plenty of resources available for homebuyers — especially first-time homebuyers — that may be worth checking out.