This is a guest post from fellow personal finance blogger Cara Palmer of CaraPalmer.com.

Cara did something a lot of people would like to do–go from in debt to saving for a down payment on a home in less than a year. 

I asked her Cara to share the 101 of how to save for a house, plus her own story of how she accomplished it. 

Enjoy!


Buying a house is a major proposition for many people. You’re eager to dive in, but you might not be sure where to start! If you’re ready to start saving for a down payment on a house, don’t go in blind. Try these key steps to learning how to get started with your home saving plan.

Step One: Determine How Much You Need

In general, to buy a home, it’s recommended that you have a 20% down payment. Some government-backed loan programs, however, will allow you to secure a loan for far less: an FHA loan, for example, can be secured with a down payment of just 3.5%.

In order to know how much that amount will be, however, you need to start with the size of the house you need. Ask yourself these questions in order to determine how much house you’re likely to purchase.

How Much Will Your Lender Loan You?

Many lenders will approve you for a specific loan amount before you even start looking for a house. Talk to your bank or to the lender you plan to use for your loan to learn how much you can be approved for. This will give you a solid assessment of the maximum loan you can afford on the house.

How Much House Can You Afford?

Being approved for a loan is just the first step. You’ll also need to calculate how much house you can actually afford.

Sure, you may have fallen in love with that expensive house just at the end of your loan range, but can you afford to keep up with it?

Take a look at your budget. How tight are your finances? While you may be able to exchange a rent payment for a mortgage, you’ll also need to leave room for new, higher utilities.

As a homeowner, you’ll also need to deal with home repairs and other associated expenses. Examine your budget to make sure that you can actually afford the house you’re considering.

What Will Closing and Moving Costs Look Like?

Moving into your first house is a big step–and it’s also an expensive one. Make sure you’re prepared for all of the expenses that will go along with moving into your house. In general, the closing costs on your house will cost between 2 and 5% of the purchase price. You may also need to be prepared to pay:

  • Homeowner’s insurance costs
  • Property taxes
  • HOA fees
  • Any fees to open new utility accounts or to move your existing accounts
  • Moving expenses
  • Calculating these expenses will give you a more solid idea of exactly what you can expect to pay when you purchase your new home.

Step Two: Know Where to Keep Your Money

When buying a home is on the immediate horizon, you want to know that you’re keeping your money in the right place. Rather than investing it in potentially risky ventures, keep the money in an account where you know it will be accessible when you’re ready to purchase your home. Try some of these strategies:

  • Tuck it in a high-yield savings account. No, savings accounts don’t offer the same money-increasing advantages as investment accounts. Online savings accounts, however, may provide higher interest rates while still keeping your money easily accessible.
  • Purchase a CD. Buying a CD will lock away the savings you’ve made for your down payment for a period of time. CDs are particularly useful if you plan to purchase your new home in six months or a year: you’ll have time for them to reach maturity, but in the meantime, your down payment will be tucked away where you’ll have trouble accessing it. Since the money isn’t easily accessible, you won’t be able to spend it on anything else unless it’s an emergency.

Step Three: Start Saving

You’re ready to start saving for your down payment, but where do you start? Sometimes, your budget may feel too tight to allow you enough wiggle room to really save for that down payment. If you’re ready to start building your down payment, try some of these tips.

Evaluate Your Food Spending

Food spending is one of the many indulgences people don’t realize they engage in. You know that food is a necessity, so you justify excess spending even when it’s not really necessary. The truth, however, is that a few simple changes can significantly change your food budget.

  • Take a look at how much food you waste. Do you often throw away unused produce or even uneaten portions of meals? Consider how you can reduce that food waste.
  • Start meal planning. When you know exactly what you need for the week, you can reduce your excess food spending.
  • Eat out less. Pack your lunch for work and prep a few meals ahead of time so that it will be easy to throw a meal together even on your busiest night.
  • Shop in your cabinets before you prepare your grocery list and meal plan. It may surprise you what you’ve tucked away.

Take a Look at Money Wasters

For one month, take a solid look at where you’re really spending your money. Write down every purchase you make or look at your bank account and divide out your spending at the end of the month. Do you spend $50 every time you walk in Target, even when you just went in for laundry detergent? Are you guilty of stopping at your favorite coffee shop several times a week? In many cases, a real look at your monthly spending will quickly allow you to identify the places you can cut spending to save a little money.

Set a Fun Budget

Let’s face it: you’re not going to stop your fun spending completely. In fact, if you try to completely eliminate your fun spending, you’re more likely to cheat!

Instead, give yourself a set fun budget to work with each week. You’ll find that it’s easier to walk away from purchases you don’t really want in favor of the ones that will have a bigger impact on your overall happiness.

Cut Unnecessary Expenses

Be honest with yourself about what expenses are really necessary. Are you completely ignoring your gym membership? Do you catch yourself going out to the movies several times a week, even when you aren’t interested in seeing the current movies? By changing these habits, you can improve your overall financial well-being.

Try Out a New Source of Income

Are your best efforts to save not yielding enough for your down payment? Try out a new source of income that will help boost your available funds. Try out a side business, whether it’s consulting, selling something that you use every day and love, blogging for money, or tutoring.

Put those extra funds aside. You’ll be surprised by how fast they add up!

What do these steps look like in real life?

I was able to go from being $20,000 in debt to saving up for a down payment in a year. Here’s how I did it.

Downsize

I moved into a small apartment in an old hospital that had been converted into a furniture warehouse. My rent was only $600 a month, and that included utilities. It was a little creepy living in an old hospital but the amount of money I saved made it worthwhile.

Make Money

My next step was working all the overtime that I could stand to work. I became friends with a girl in my neighborhood who worked shift work like me; we worked out an arrangement to take care of each other’s dogs. My dog Bella was my number one priority, I didn’t want to sacrifice her care.

Save Money

The final step for me was cutting back on all of my remaining living expenses. I created a budget, stopped eating out all the time, and shopped around for cheaper insurance.

It didn’t take any time for me to pay off all of my debt and save $20,000 for a down payment on a house.

What Can I Afford

To determined how much house I could afford I used an online mortgage calculator to figure out what my monthly payments would be. My insurance company provided quotes for property in my price range.

Ultimately I decided to buy a fixer-upper so I could keep my house payments low.

Choosing A Lender

I called several financial institutions in my hometown and asked for the current interest rates and the average closing costs.

A local credit union helped me with the financing. The interest rates and closing costs at the Credit Union couldn’t be beat.