September 6, 2021

How To Save For a House

How to save for a home, budgeting tips, and where to hold your money until the perfect time to buy!

10 min read

Qoins Staff

@qoinsapp

How do I begin saving for a home?

Two things paths can be taken here. Either you purchase a property after taking a mortgage loan and repay it over the course of 15 to 30 years. Or you save enough money to buy a property outright after a few years of prioritizing savings. When deciding between the two, compare the annual return of the stock market compared to the rate of your mortgage loan. If the rate of return from the stock market is more, you are better off investing and taking on a mortgage loan, rather than purchasing the home in one lump sum payment. In most cases this holds true, your mortgage loan will be lower than the average returns of the stock market, therefore investing with a mortgage loan will allow you to generate the most amount of wealth when compared to saving for a few years to purchase the home. 

 

While investing and saving to buy a real estate property, keep in mind the fact that it is going to take you 7-10 years to amass enough wealth to buy a house. If you are not wise with your money plans, it could take even longer. With the prices of real estate skyrocketing, you cannot expect to buy your desired property at the current price. By the time you are done with saving money, the price of your dream home must have probably doubled. In that case, to obtain a gross estimate of the money you need to purchase your house, do the following.

 

Find out the current rate of growth in property prices. Now use it to calculate the price of a property after some 7-10 years. There, you have a realistic value. In this case, even if you end up saving a little less than the money you actually need after seven years, the deficit will be made up by interest awards. Look for schemes that provide maximum interest within a maturity period of seven to ten years. Or you could try riskier investment plans like shares, mutual funds, and crypto.

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How much should I invest/pay every month?

After you have obtained a gross estimate of the amount that you need to accumulate to buy your own house, divide it by the number of months you have until the purchasing date. Now, this is the money you need to set aside every month. If the amount seems a bit too much to you, try this:

  • Increase the duration of the denominator or the number of months that you want to wait before purchase.
  • If the savings per month is not too high but you would still like to bring it down a bit, do that. Carry out depreciation of five percent and set the resultant amount as your outgoing deposit per month. The depreciation will be compensated by the interest which is definitely going to be more than five percent for long-duration savings deposits.

 

For example, if you've decided that you want to have a deposit on a home in 24 months for $50,000 then you monthly savings contribution should be $2,083. If you have planned to buy the property now, look for a good loan service provider. Four things to keep in mind while selecting a good one :

  • They should be well known.
  • They should be backed by sound experiential opinions or recommendations from someone whom you know has reaped benefits from them. The person who recommends it should have a trustworthy image in your view too.
  • Their operations should be smooth and seamless.
  • Look for any red flags. These could be probable court disputes about customer money stuck in schemes or any indicator of unreliability.

 

After you have selected a good loan facilitator, do the necessary paperwork and keep all photocopied versions of documents with you as proof. That way, no one can meddle with your assets.

 

Where do I hold my money to buy a house later?

A sound recommendation would be to begin saving in a high yield savings account. There are numerous options that will pay you 1 to 3 percent per year on your savings, and the best part of these accounts is that they’re 100% liquid. Meaning whenever you need to purchase the home, or if it’s the “perfect” time, then you can use those funds. There are also no fluctuations in these accounts when compared to holding the funds in a stock market account, you wouldn’t want that perfect time to come around only to find that the stock market it down and you have to pull funds out while the account is down. Set up auto transfers into your high yield savings account, and begin contributing a portion of each paycheck towards your home. And this is a group effort, if you have a significant other, you can set up a shared goal with them where you will both be contributing to one fund to achieve the goal in half the time. 

 

In sum, congratulations on focusing on homeownership. It’s quite the process, but with some planning, your dream of owning a beautiful home is only a dedicated plan away from becoming a reality. Happy buying!

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