How to Save Money to Buy a House

Finding the right house takes time – and money. So, as soon as the idea of owning your own home pops into your mind, you may want to begin saving money. I think of it as a two-fold challenge: figuring out how much money you should save for a house and coming up with the best ways to go about saving that money.

The down payment usually is the top priority when you’re saving money to buy a house. In 2022, the median down payment was only 6% for first-time U.S. home buyers, and 17% for repeat buyers, according to the National Association of Realtors.¹ With the median U.S. home sale price at $416,100 in the second quarter of 2023,² that means a typical buyer would have to save roughly $25,000 for a house down payment at 6%, and about $71,000 to put down 17%.  

But often, those levels mean you have to pay extra later. You’d want to put 20% down – or about $83,000 for that median-price house – in order to avoid paying private mortgage insurance (PMI) and other fees.³ That said, some lenders offer mortgages through various government-sponsored programs you may qualify for that require as little as 3% down⁴ – and some at 0% as well.⁵ An experienced lender or mortgage banker can help you figure out the plan that best suits your situation. For more, read “How Much of a Down Payment Do You Need to Buy a House?”  

However, the initial costs of buying a house go beyond the down payment – often referred to as the “hidden costs” of purchasing a home.⁶ They include the home appraisal, survey and title fees, homeowner’s insurance, home inspection, attorney fees, broker fees, and paid-upfront property taxes, to name a few.⁷ Be sure to check if your state charges mortgage recording tax, as that may factor in to your closing costs as well.^8,9,10 Closing costs, on average, range between about 1% and 5% of the home price, or roughly $4,200 to $21,000 for that median U.S. house.^2,11

To get a sense of how much money you will need to save for the house you want, experts suggest you begin by looking at recent home sales for the type of home you want – number of bedrooms, architecture style, finished basement, etc.– in the neighborhoods where you want to live.¹² The prices you find in that research will help you get a sense of what a potential mortgage would look like and the amount of down payment you’ll need.  

To illustrate, let’s stick with that median $416,100 for a house. If you aim for a 20% down payment, you’d need $83,000, plus an additional $4,500 to $21,000 or so for closing costs, depending on the location. Then factor in your timeframe for saving. If you want to save the money you need to buy that house in five years, divide the down payment by the number of months (60) and that’s your monthly goal. That math works out to saving about $1,450 per month at the low end of the closing cost range to $1,730 per month at the high end.

Now that you’re saving to buy a house, where do you put the money? Interest rates from old-fashioned bank savings accounts are measured in hundredths of a percent, and there are only so many shoeboxes or mattresses to put money under in your current home. It makes sense to open a high-yield savings account because they can earn more interest on your savings than a standard bank savings account and are still nearly risk-free thanks to government insurance.¹³ You also may want to consider a certificate of deposit (CD). Compare the CD and savings account interest rates to determine which offers the best return over a designated amount of time. Opening both types of accounts may benefit you as well.