How to Save for a House

How to save for a house? It's a common question among newly married couples, but this was not our first marriage milestone. My wife and I didn't wait too long after our wedding to create a family.

We were parents one week before our first anniversary. Our apartment was too small for a third human, so we endeavored to buy a house. Unfortunately, we didn't have a lot of cash on hand since we moved from Florida to Virginia six weeks before we got married, and we footed most of the bill for the wedding.

A couple on move-in day

However, we were still able to buy a house, though barely in time for the birth, but amassing a down payment relatively quickly. If you're also scrounging for a down payment, here are some ways you can save and reach that goal faster.

Family gifts and your down payment

My dad pitched in $10,000 as an advance on my inheritance. When he passes away, I'll get less money than my sisters, which he thought was the fair way to do it.

Buy a semi-fixer-upper

We bought a house in less-than-pristine condition, which meant we paid less than something turnkey. We then gradually fixed it up, doing most of the work ourselves. Think of it as trading a larger down payment today for expenses that are spread out over the next year or few.

Related >> Can We Afford to Buy a House?

Sell your stuff

I have moved a few times in my life, and each time I made $1,000 or more from selling stuff on Craigslist, to colleagues, or at yard sales. Bonus: less stuff to move!

Use IRAs 

As an advisor for a retirement-planning service, it almost hurts me to type this. But if you are willing to retire later in exchange for a home today, you have options. Taxable distributions from an IRA might be exempt from the pre-59 ½ 10 percent penalty (but not taxes) if you are a “first-time home buyer,” which the IRS defines as someone who “had no present interest in a main home during the two-year period ending on the date of acquisition of the home.” So you might still be eligible even if you have owned a home previously but not recently.

The penalty-free distribution is limited to $10,000 per qualified person (including both spouses if both are “first-time buyers”). Also, contributions to a Roth IRA can be withdrawn any time tax- and penalty-free; however, this doesn't apply to the growth or a Roth employer-sponsored account. But before you touch any of your IRAs, make sure you review IRA withdrawal rules.

Related >> Setting Your Homebuying Priorities

Get help from your boss 

If you are a valued employee, you might be able to ask for a raise or an advance on your bonus or paycheck. You might also ask if you can take a benefit in the form of cash. This can be tricky for employers, since it can mess up their accounting. But it might be worth a shot if you have a good relationship with the purse-strings-that-be. Feel free to play the “we're having a baby!” card if you work for a family friendly company.

Get help from the government 

Some state and local governments offer assistance to younger or lower- to middle-income citizens. Uncle Sam's FHA also has programs for cash-poor home buyers. But if you are getting a loan that requires a down payment lower than 20 percent of the home's value, factor in the possible higher long-term costs, such as a higher interest rate and private mortgage insurance.

The down payment required on an FHA loan can be as low as 3.5 percent of the contract sales price of the home, depending on your credit score. Note one thing, though, all of the funds from the down payment need to come from the buyer his or herself, so gifts won't work here. For complete details, see this detailed explainer from the FHA.

Related >> FHA FICO loan requirements

Those are just some ideas. If you have others, let us know in the comments section below.

More about...Budgeting, Frugality, Home & Garden, Retirement

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Reece
Reece
5 years ago

Great post- I just wanted to say how much I agree with your second point!
There are new houses springing up everywhere around me, however they’re not as well built as older houses and are always a lot smaller, as well as being more expensive.
I’ve got two old houses, both of which have been worked on and are now worth a lot more. They were very cheap to buy, and now provide a good monthly income from rent. It may not be for everyone, but it works for me.

Mr. Frugalwoods
Mr. Frugalwoods
5 years ago

While all of that is valid… the real answer here is: If you don’t have enough for a 20% downpayment, keep renting until you do. Why? 1) Being able to save is proof to yourself that you are disciplined enough to own a house. Homeownership isn’t all puppies and roses, and plenty of people bring themselves to financial ruin by buying a house at the wrong time. 2) If you have less than 20% down, you’ll likely need to pay Private Mortgage Insurance (PMI). This is literally money that you are setting on fire every month. And if you get… Read more »

Debi
Debi
5 years ago

“And stealing from your retirement account? The author touched on this, but it’s practically the _worst_ financial decision you can make other than being a serial gambler.”

Or a day trader. Oh right, you already covered that when you said serial gambler!

Well said.

EMAC
EMAC
5 years ago

While it is true that buying a home using traditional financing methods require a 20% down payment, there are great loan products you could use to buy with as little as 3% down payment and with no mortgage insurance. It’s all about how much you want it. If you truly want to buy – you are mentally, emotionally & financially ready for the additional responsibility, then look for these types of loan products.

HKR
HKR
5 years ago
Reply to  EMAC

No, there are not great programs with as little as 3% down and no private mortgage insurance. USDA offers a 100% (no downpayment) loan in rural areas, but for this “great program” you pay 2% up front ($2,000 on a $100k loan) PLUS 0.50% of the balance annually for the life of the loan. FHA offers a program with as little as a 3.5% downpayment that is even worse – the upfront fee is slightly better at 1.75%, but then a whopping 1.35% of the balance annually for the life of the loan. Both of the programs’ up front fees… Read more »

Tina in NJ
Tina in NJ
5 years ago

We married in our mid 30s, with a 4-yr-old from his previous marriage. I wanted everything right away, but we did it in order: wedding, then house, then baby (ended up adopting). During this time, we lived on his salary and banked mine. It helped that this was in the late 90s, before the real estate bubble blew up, but the general idea still holds. One thing at a time and bank one salary. It worked for us.

NicoleAndmaggie
NicoleAndmaggie
5 years ago

Agree with mr. Frugal woods. And babies don’t take up much space. Moving to a house just because you are having a kid is like buying an SUV because you are having a kid. Surprisingly unnecessary. Much better to give your child the gift of stability and not having to stress out about money even if there’s an emergency like a job loss. (A good reason to have extra savings like yesterday’s post.)

Brandy
Brandy
5 years ago

Im reminded of the MadTV episode where the woman had a Range Rover and the old woman talking to her asked how many kids (1) and if just 1 how large was this child.

lmoot
lmoot
5 years ago

I agree. When a baby is born, he/she can easily stay in a crib in the parents’ room for the 1st year. It is NOT necessary to upgrade before the baby is a toddler.

Beth
Beth
5 years ago

I confess I’m a little surprised by this post. “Get help from your parents” and “sacrifice your retirement savings” is exactly the kind of thinking that has so many young Canadians buying overpriced condos and houses they can’t really afford. IMHO, if you have to ask for a raise or help from the government then you need to ask yourself some hard questions about how affordable a home really is. I’m sure Robert’s family must have factored this in, but it wasn’t clear in the article — Beware that $10,000 now is worth a lot more than $10,000 in the… Read more »

Dianne
Dianne
5 years ago
Reply to  Beth

Absolutely! As the youngest of six, by 15 years, my parents tried to be “fair” by giving equal gifts, ie: $50.00 for graduation, but by the time my gifts arrived, they looked a little punier. I have always appreciated their efforts, but still, be wise so no one is put out.

Wendy
Wendy
5 years ago

8.) Save! Live on less than you make. How did this not make the list?!?

Beth
Beth
5 years ago
Reply to  Wendy

9.) Earn more money. Pick up a side gig or some contract work. (It’s not for everyone, but it can help with a one-off financial goal like a downpayment)

Laura
Laura
5 years ago
Reply to  Wendy

It didn’t make the list because the article was about how to get the money fast. Saving it up is the right way to do it, but it takes time.

Beth
Beth
5 years ago
Reply to  Laura

To be fair, the title of the article does say “how to save for a down payment”.

Mark Ely
Mark Ely
5 years ago

What a garbage list/headline.

I used to enjoy this site, but it’s really fallen off over the last year.

Kanoa
Kanoa
5 years ago

Why put down 20%? If you have good credit just put down 5% and invest the other 15% to pay the PMI and keep as a cushion. Or use the money to improve the house which might improve the value of the house so that the PMI can be erased in a couple years. The latter is what I did.

KT
KT
5 years ago

Wait what? Take gifts from family, get pay advances from your employer, and tap into your retirement? That’s pretty much the triple threat of poor financial advice.

How about work extra gigs, cut your budget, and save save save?

Ris
Ris
5 years ago

My husband and I didn’t wait too long after our wedding to create a family either. That’s what the wedding signifies–once we were married, we became a family.

Aron
Aron
5 years ago

Where am I?

Johanna
Johanna
5 years ago

“Feel free to play the “we’re having a baby!” card if you work for a family-friendly company.”

I’d be really curious to hear if there are any women who have played this card to good effect. Usually, when men become parents, they’re perceived as being more dedicated to their jobs and deserving of more money, but when women become parents, they’re perceived as being less focused on their work.

nicoleandmaggie
nicoleandmaggie
5 years ago
Reply to  Johanna

Huge amounts of empirical research evidence shows this as well. There’s even a famous sociology paper that does a randomized controlled experiment.

Johanna
Johanna
5 years ago

Do you have a reference? I’m not so familiar with the specific research studies in this area, and I’d like to learn more.

Jadzia
Jadzia
5 years ago
Reply to  Johanna

Yeah, I never ever EVER would have played the “baby card” because I’m not an idiot. As it was, being dumb enough to have a pregnancy “show” got me told that in my firm, mothers could not be promoted because they weren’t dedicated to their jobs. (Never mind that I had been working and billing more hours than the boys for years at that point, and was a mother the entire time.) If employers could get you to put your kids into foster care for 18 years so they can squeeze a few more hours out of you every week,… Read more »

Jessica
Jessica
5 years ago

As a longtime reader, infrequent commenter, this post made me feel like I had to voice my opinion. Why the need to “save fast”? What’s wrong with a newlywed couple and a baby simply moving to a larger apartment? Better yet, making due with what they have? It sounds like the biggest contribution here was from the parents…which may be “fair” but isn’t an option a lot of us have. One of the reasons I enjoy Get Rich Slowly is because it encourages empowerment on a personal level. It doesn’t encourage us to go out and buy lottery tickets or… Read more »

Laura
Laura
5 years ago
Reply to  Jessica

I agree. Babies really don’t take up as much room as you think (although their stuff can, if you let it get out of hand). A couple of years in a small apartment with us and baby makes three should be do-able, and gives you time to save up (at least if you don’t have to pay for childcare). Then you’re also not dealing with the stress of a new baby along with the stress of moving into a new house that you have to pay for with its extra expenses. And yeah, not all of us have rich parents.… Read more »

zambian lady
zambian lady
5 years ago

I would be hesitant to involve family or anyone else for that matter, as relationships may be destroyed. I think the best thing would be to save until you have a down payment. Your home may be cramped with the arrival of a baby, but I guess it should still be manageable.

nicoleandmaggie
nicoleandmaggie
5 years ago

The more I think about this post, the more I wonder… Robert Brokamp– are you trolling? Because seriously, this post seems like it’s comment-bait.

And it doesn’t seem to be working either.

kat
kat
5 years ago

I disagree with the assumption that you need more space immediately. Babies are pretty tiny. They don’t know the difference between a 2 bedroom and 3 bedroom place, or the difference between Goodwill and Baby Gap. My husband’s parents raised 6 kids in a 3 bedroom house. Sure, he slept in the living room when he was 8 yrs old, but his parents told him it was like camping. He turned out fine.

Hmphh
Hmphh
5 years ago

This list seems to personify the Millennial approach to pretty much everything. “I want it now. If I can’t afford it now, Mom and Dad (or my employer) somehow owe it to me to provide it.” Seriously, you get a raise when you earn a raise, not when you “need” more money to support the lifestyle you want.

For the record, I understand I made a sweeping generalization about an entire generation. Of course, it does not apply to all Millennials. My apologies to those of you who are standing on your own two feet financially.

Jane
Jane
5 years ago
Reply to  Hmphh

Then why did you say that in the first place?

Hmphh
Hmphh
5 years ago
Reply to  Jane

I assume you’re taking issue with my offering preemptive apologies with the assumption being that if you have to apologize for something then you shouldn’t say it in the first place. Perhaps I should have phrased it differently. It was meant to be lighthearted, but tone doesn’t come through online. For example, I read your response as snarky when perhaps it wasn’t intended to be. I stand by the idea that a generational attitude is a valid issue even if it does not apply to every single individual. If I had not acknowledged that, there would have undoubtedly been a… Read more »

Mysticaltyger
Mysticaltyger
5 years ago
Reply to  Hmphh

The “I want it now” syndrome most definitely pre-dates the Millennial generation. It’s always been around, but as far as I can tell, it really got going in the late 70s and early 80s when the Boomers were coming of age and it really hasn’t stopped since…so I think it’s quite hypocritical to put it all on the Millenials.

Hmphh
Hmphh
5 years ago
Reply to  Mysticaltyger

“I want it now” has been a thing for generations, no doubt. I think the difference in this generational attitude is “Mom or Dad or my employer should/are obligated to provide it for me.” That seems to be a unique mindset for this generation. And again, that doesn’t mean everyone in the generation thinks this.

TexSquirrel
TexSquirrel
5 years ago

I think you accidentally posted your April Fools post you wrote for next April 1st. Worst financial advice I’ve seen in quite a while.

Ely
Ely
5 years ago

Wow, man, I feel for your wife. Pregnant AND on bed rest while MOVING and then fixing up a house with a newborn? Not to mention being indebted to the in-laws and reducing retirement funds right when they can do the most good?

I hope you are working your tail off to make it up to her.

Ely
Ely
5 years ago
Reply to  Ely

I just realized this was written by Robert Brokamp. Now I think he’s trolling. On the other hand, the actions he took probably seemed like a good idea 20 or so years ago. They certainly don’t sound to hot now.

Robert, would you mind telling us whether you’d do the same now? Or whether you’d advise your kids to do it? My parents did plenty of strange things that worked for them at the time, but that they’d never recommend to me or my sibs.

nicoleandmaggie
nicoleandmaggie
5 years ago
Reply to  Ely

Maybe it should be, “How to fleece your wealthy parents into giving you money now (to buy something you don’t really need).”

Now where do I find wealthy parents?

Emily @ Simple Cheap Mom
Emily @ Simple Cheap Mom
5 years ago

I agree with other commenters that you don’t need a house to have a baby. I agree that the best way to save a down payment is to earn more and spend less. But I also recognize that sometimes we make financial decisions for emotional reasons. Full disclosure: I bought my first house without 20% down, so I can relate to this article. It turned out to be a better decision financially than renting for me. But, it could have gone the other way. I’d like to point out that there were some side hustle ideas in the article along… Read more »

Carla
Carla
5 years ago

Robert, why didn’t you move into a larger apartment until you can comfortably afford to buy? I hope the suggestions listed are under the assumption that you’re already living on less, saving, etc. You now have the down-payment from wheeling and dealing but what about taxes, maintenance, etc – especially if its a fixer upper?

As an aside, the moment my husband and I got married we became a family.

Steve @ Live Smart Not Hard
Steve @ Live Smart Not Hard
5 years ago

As an aside on the FHA loan and PMI, you aren’t forced to carry it for the life of the loan. Check your situation out, but in my case, when you get it down to (approximately 22%) paid off, you can have it removed as long as you’ve paid it at least five years. Agreed wholeheartedly that it’s wasting money you’ll never get back.

EMAC
EMAC
5 years ago

Steve – that is not the case with FHA financing anymore. Now, if you get an FHA loan now, you will most likely have to carry PMI for the term of the loan OR until you refinance.

Jenna
Jenna
5 years ago

New FHA guidelines require PMI for the first 11 years of an FHA backed loan. Pretty long time to pay…

HKR
HKR
5 years ago
Reply to  Jenna

The 11 years of FHA fees is only if you have at least a 10% down payment (in which case you’d be better off to get a conventional loan with private mortgage insurance, which would avoid the 1.75% up front fee and drop off sooner). If you have less than 10% down, you pay FHA fees for the life of the loan.

Jenna
Jenna
5 years ago
Reply to  HKR

Omg!!!!!!! The life of the loan 🙁

JDS
JDS
5 years ago

It’s odd to find this on “Get Rich Slowly.” Is this for real? Like others, my first thought was, “Bigger apartment, perhaps? Just how small was your apartment, anyway?”. I grew up in a little two bedroom, one bath home, with two siblings, and how lucky for us we were all girls, so all three of us could share one bedroom and that miniscule closet which our dad fitted out with three staggered rods. We even bathed together as teenagers, to save time in the bathroom (no shower, just a tub). My parents could not, and would not have given… Read more »

Ellen
Ellen
5 years ago

I am pregnant with my 1st child and will be attending business school to get an MBA starting next month (yay!). My husband and I live in a 600 sq foot 1-bedroom place that is considerably less money in rent than most of the comps in this area (southern california). we got really lucky when we found this place because we can afford the rent easily as well as save my entire paycheck each month. It is amazing. When we got pregnant, we were thinking of moving closer to my husband’s work and my school, as well as find a… Read more »

C Joyce
C Joyce
5 years ago

Whoop this guy does retirement planning? This all reads like what NOT to do. If you have to go thru all these gyrations,,you cannot afford a house. RENT or stay in your small place until you can come up,with the 20% down, plus extra for furniture, etc. what would they have done if there was something wrong with the baby, requiring a long hospital stay.
I am still shaking my head over this post……

Josh
Josh
5 years ago

This is a terrible article and clearly this site is no longer focused on giving sound financial advice.

Grace @ Investment Total
Grace @ Investment Total
5 years ago

Nice tips. This is genuine. However, we have to take into consideration when it comes to buying a house is the “mortgage amortization plan”. You have to check what is the total amount to be paid, or else you didn’t even know the price of the house after it has been paid in many years can sometimes buy a two house. Doing a simple math sometimes can help the house buyer to save a lot of money.

Kim
Kim
5 years ago

This reads like a list of steps to take as a result of an emergency brought about by very poor planning.

Stayc
Stayc
5 years ago

I’m (sort of) facing this predicament right now. I’m getting married in 3 months. We’ve been in our apartment for 2 years and are VERY tired of the rent increases we’ve dealt with – for what we’re now paying in rent for a 1 bedroom apartment we could pay the mortgage on a 3 bedroom townhouse. We’d like to buy a house right away (within 6 months after we get married). We’re also paying for the wedding (about $15k) ourselves. We are trying to save now as much as possible. We “technically” have 20% we would need for the budget… Read more »

EMAC
EMAC
5 years ago
Reply to  Stayc

Stayc – what about a savings acct for your wedding registry? Other ideas? Think “starter” home. Get into a 1-2 br condo vs 3 bedroom. You can upgrade later. Also, if both your credit score are decent, look into no pmi loan products from lenders such as BB&T, Citi, Bank United. It is very important to have contingency cash when you buy.

Beth
Beth
5 years ago
Reply to  Stayc

Unfortunately, the pitfall with the rent = mortgage payment logic is all the additional costs. For instance, my rent covers things a mortgage doesn’t, such as maintenance and repairs, appliances, property taxes, some utilities, snow removal and law maintenance. Plus, my utilities and insurance are lower thanks to the smaller space, I need less furniture, I don’t have to worry about renovations.

When comparing rent to owning, you really have to look at the all-in costs. There are some good calculators out there. I’ve found that owning often has more to do with lifestyle preferences than finances anyway.

Josh
Josh
5 years ago

Stayc looks like you can save up to $15k pretty easily if having a house is more important than an expensive wedding to you. Also even if the mortgage payment is the same as your current rent, owning would still be more expensive when mmaintenance, insurance, and taxes are factored in, not to mention everything you will probably buy to fill a bigger place. I’m not saying any of that stuff is bad to have, just that expecting everything now instead of being more patient is setting yourself up to make some questionable financial decisions already such as not having… Read more »

Kasia
Kasia
5 years ago

The idea of dipping into a retirement account sounds tempting though probably not the wisest move. I would prefer to spend less, find a side hustle to make extra cash, and use the stock market (if you know what you’re doing) to increase your house deposit, I’m actually doing all three now. While the article doesn’t suggest the usual advice, it opens your mind to other options, without regurgitating the same advice of spend less, save more. We all know we have to do that, but sometimes it’s good to read about other options available even if we don’t agree… Read more »

lmoot
lmoot
5 years ago

This is how I saved for 20% down on my first house. It was a an even mixture of generosity, hard work, and luck. Generosity When I was 16 I and my 2 cousins each got 10k from my grandfather when he passed. While I personally wouldn’t condone asking for money from family (unless you can make it profitable for them), I have to admit this helped tremendously…obviously. My cousins eventually bought cars, but I wanted an appreciating asset and always wanted to own a house. I kept my inheritance in CDs for nearly 10 years where it grew to… Read more »

lmoot
lmoot
5 years ago
Reply to  lmoot

ETA: for the record I agree with the others.I would never borrow from retirement, or do any other fancy wealth transfers to put a down payment on a house. It’s not really “saving”, just redistributing. Saving means you are adding to your wealth. For me it’s 20% down or nothing (maybe 30% down for rental properties). It’s more than doing it to make the bank happy, it’s proof to yourself that you are ABLE to do it, because trust me, as a homeowner you will need the practice of sacrifice and hard work. I don’t begrudge family help if they… Read more »

Mark Battle
Mark Battle
5 years ago
Reply to  lmoot

lmoot,
Yours was superior planning on your end. Cannot add anything to your plan except “Bravo”. I like your ideas about “I bought the worst fixer upper (nothing structural though), in the best neighborhood I could afford (and liked) and fixed the crap out of it”. That was sheer genius. Now I have a corollary ? to go with that train of thought for everyone else reading this post. Has anyone thought about buying homes that have tax liens against the property in addition to the home also being a fixer upper..??
Inquiring minds want to know…

oakland
oakland
5 years ago

i took all my money out of my pension (39k after taxes). paid off my cc debt and bought a house and converted the garage into a studio. my tenant pays $800/month. i dont know of any other investment that can bring me $800/month in semi-passive income. im going to refi from 30 to 15 years.

Ren
Ren
5 years ago

Don’t risk your health. Don’t sell yourself to be a guinea pig.
Lack of health limits your life choices.
Yo can eat on budget but healthy. Try aquaponics if you have space. Be creative here, but don’t risk your health.
Your body and mind is all you really have.

ooi
ooi
5 years ago

Every time i hear someone says they need a bigger house or a bigger car because a baby is coming, it’s a goner. They are actually putting their want before their need.

a woman
a woman
4 years ago

before my first mortgage I followed several ideas:
-put away for 2 years same amount I suppose to be the monthly payment
-share a rented aprt. with 2 friends
-less bills ( before and after the movement)
-a temporary second job
Finally I had 20% from the house.
I continued this life for a while, in order to pay faster /reduce the years of the mortgage. Renegotiate the assurances.

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