6 ways to save to buy a house with an average salary
As of September 2023, the average salary in the United States is $59,428 per year, according to Forbes. If you earn around this amount, you may feel like your income barely covers your daily expenses, let alone saving for a down payment on a home.
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Saving for a home on an average salary is certainly a challenge, but it is not impossible at all. With determination and smart financial choices, your dream of owning a home can become a reality, even on an average salary. Here’s how.
Create a budget
Before embarking on your journey to save for a home, it’s essential to set clear, achievable goals. Determine how much you need for a down payment and set a timeline for reaching that goal. This will provide you with a clear roadmap and motivation to stay on track.
Track your monthly income and expenses carefully, and identify areas where you can cut back. Allocate a specific portion of your income to your down payment fund
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Cut unnecessary expenses
“If you want to save up for a home with a median salary, cut back on spending,” said David Buck, a housing expert at DollarSanity. “This means cutting costs at the grocery store, looking for ways to save on other monthly bills and cutting back on personal purchases. If you have the will to do it, it can be done.”
Although you may not be able to control your salary, you can certainly control your spending habits. Analyze your monthly expenses and identify areas where you can reduce spending. This may include canceling subscriptions, cutting back on eating out, or finding more cost-effective alternatives to your regular purchases. These small sacrifices can add up over time and boost your savings rate significantly.
Temporarily put your retirement savings on hold
“You can also cut back on your retirement savings, although that’s a risky topic,” Bakke said. “If you decide to go this route, make sure you can get back on track with your retirement savings once you buy your home.”
Even if you maintain your retirement contributions, saving to buy a home should be a top priority in your budget. Treat it like any other essential expense, like rent or utilities, and set up automatic transfers to your designated household fund each month. This approach ensures that you are constantly contributing to your household fund and prevents the temptation to spend that money on other things.
Save the winnings
Any financial windfalls, such as tax refunds, work bonuses or gifts, should go directly into your down payment fund. When you receive these windfalls of money, it’s tempting to spend it right away, but allocating this windfall to your home fund will make a big difference. These additional cash injections can give your savings a big boost and help you reach your home ownership goal faster.
Look into the room
If you’re comfortable with the idea, having a roommate can significantly reduce your monthly housing expenses. The extra income you receive from splitting rent and utilities can be directed toward your savings goal.
Living with a roommate can be a rewarding and challenging way to share expenses. It can strengthen friendships, create lasting memories, and provide a support system. But it also requires compromise and communication, skills that can come in handy if you eventually buy a home with a spouse or partner. It may mean making some adjustments, but it’s a smart way to get closer to your dream of owning a home.
Consider an FHA loan
Federal Housing Administration loans, or FHA, are government-backed mortgage programs designed to make homeownership easier, especially for individuals who may not have much savings or an established credit history. These loans are known for being easily accessible, allowing borrowers to secure a home with a lower down payment than usual — up to 3.5% of the purchase price.
FHA backing provides lenders with additional confidence, making it easier for people to qualify for a mortgage. While FHA loans provide a path to homeownership for a wide range of individuals, they come with specific rules, requirements, and associated costs, and potential borrowers should carefully consider the details before pursuing this option. Work with a skilled real estate agent to find the right home, loan package, and negotiate good terms.
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This article originally appeared on GOBankingRates.com: 6 Ways to Save for a Home with an Average Salary