Saving for a house and other financial considerations

Moving into your own house can be exciting and frightening at the same time.  Before transitioning from renting to owning a home, you’ll need to create a savings plan that not only includes your down payment (typically 5 to 20% of the home’s value) but also a reserve fund to cover unexpected emergencies.

Tips on saving for a house

If you find yourself daydreaming about a place to call your own, the first step is to set aside any money you can and take an evaluation of your financial health. Start with these tips on saving for your house:

  1. Develop a budget and timeline. Start by determining how much you’ll need for a down payment. Create a budget and calculate how much you can realistically save each month — that will help you gauge when you’ll be ready to transition from renter to homeowner.
  2. Establish a separate savings account. Set up a separate savings account exclusively for your down payment and make your monthly contributions automatic. By keeping this money separate, you’ll be less likely to tap into it when you’re tight on cash.
  3. Shop around to reduce major monthly expenses. It’s a good idea to check rates for your car insurance, renter’s insurance, health insurance, cable, Internet or cell phone plan. There may be deals or promotions available that allow you to save hundreds of dollars by adjusting your contracts. 
  4. Monitor your spending. With online banking, keeping an eye on your spending is easier than ever. Track where most of your discretionary income is going. Identify areas where you could cut back (e.g. nice meals out, vacations, etc.) and instead put that money into savings.
  5. Celebrate savings milestones. Saving enough for a down payment can be daunting. To avoid getting discouraged, break it up into smaller goals and reward yourself when you reach each one. If you need to save $30,000 total, consider treating yourself to a nice meal every $5,000 saved. This will help you stay motivated throughout the process.

Financial obligations and debt

Consider all of your current and expected financial obligations like your car payment and insurance, credit card debt and student loans. Make sure you will be able to make all the payments in addition to the cost of a new home. Aim to keep total mortgage payments plus utilities to less than 25 to 30% of your gross monthly income. Recent regulatory changes limit debt to income (DTI) ratio on most loans to 43%.

Check your credit score

A high credit score indicates strong creditworthiness. Prospective homebuyers can expect to have their credit history examined. A low credit score may keep you from qualifying for a low interest rate on your mortgage loan. If you find that you do have a low credit score, you may want to delay moving into a new home and take steps to raise your score.

Factor in all new home costs

Create a hypothetical and somewhat realistic budget for your new home so you don’t find yourself financially stressed after moving into your new house. Find the average cost of utilities in your area and factor in the following that may apply:

  • gas
  • electricity
  • water
  • cable or internet
  • trash pickup
  • yard maintenance
  • real estate taxes
  • mortgage and homeowner’s insurance
  • potential homeowner association fees.

Reserve savings after your house purchase

From a lending standpoint, there aren’t any requirements stating buyers must have cash reserves remaining after the purchase of a home. It’s possible to spend every penny of available cash on buying your home. However, it’s not a wise move.

It’s best to set up an emergency fund to deal with unexpected expenses. Your fund doesn’t need to have a lot of money, but certainly enough to deal with things like surprise house or car repairs which can’t be ignored and will likely cost money.

Most people don’t have any significant savings and rely on credit cards to deal with these expenses. Kicking these costs down the road with added interest can often lead to larger financial problems later on.

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Make saving a lifelong habit

Make a resolution to set aside some percentage of your income each month to build up your home down payment, create an emergency fund and give you peace of mind saving for your future.

If you set aside 10% of each paycheck, it’s likely that you won’t miss the money, and your savings will grow faster than you think.

Apply online for a Bank Midwest savings account


Post updated. Originally published February 2018.



Beginning the home buying journey the very first time can be a bit intimidating, but it doesn’t have to be. Here’s an overview of the home buying process in five steps.

Give one of Bank Midwest’s mortgage lenders a call to learn more about saving for a house and starting on your path toward homeownership.

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