Saving For a Home in 2022

How to Start Saving for a Home

New year, new home? If saving to buy a home is one of your resolutions this year, this article is just for you. We’ll review how to set your home buying budget and what you can afford, how to calculate your down payment, the best accounts to help you save, and more—all so you can reach your homeownership goals.

Step 1: Determine your home buying budget.

Figuring out your home buying budget is the first step in saving for a home for two important reasons. First, it’ll help you understand how much home you can comfortably afford. And second, it identifies how much you need for a down payment.

In general, you should be able to finance a home with a value between two and four times your gross annual income. So, if you make $100,000 annually, you should be able to purchase a house between $200,000 and $400,000 with a mortgage.

When calculating your down payment, you should plan to put down from 3% to 20% of the home’s total value. If you’re planning to apply for a conventional loan, many lenders require a down payment of 20%, and anything less can trigger additional mortgage insurance expenses. At FirstCapital Bank of Texas, we offer a variety of mortgage loans, including options requiring little or no down payments.

Step 2: Find a savings account.

If you’re planning to make a down payment on a home within a year, a conventional checking or high-yield savings account could be the right choice since your money is easily accessible when you find your dream home. Consider FirstCapital’s Kasasa Checking account, which gives you convenient access to cash when you need it while still earning a competitive interest rate—something many checking accounts don’t offer.

However, if saving for a home will be a long-term financial goal of two years or more, an account like a money market may offer higher interest rates—helping you make the most of your money and meet savings goals faster.

Step 3: Reduce your spending.

After establishing a budget, take a closer look at your discretionary spending. Are there wants you can live without for a little while? Cutting back spending, even temporarily, can help you reach your goals faster.

Creating a monthly budget can help you curb your spending and accelerate savings. Use the 50/30/20 saving rule to start and put 50% of your income toward needs, 30% toward wants, and 20% toward savings.

If you’re already budgeting, reduce monthly spending by 10% across the board and put that money toward savings. It’s small enough that you won’t feel deprived, but it can add up over time.

Step 4: Automate your savings.

Don’t wait until the end of the month to see what’s left to put toward savings. Instead, pay yourself first—or better yet, automate savings with recurring transfers. It’s a simple step that guarantees you’re contributing money toward your homeownership goal.

At FirstCapital Bank of Texas, our free online and mobile banking services make it easy for you to set up automatic transfers and easily track your savings—keeping you motivated to reach your goals.

Step 5: Pay down debt.

If you have other debts, it’s a good idea to pay them down before applying for a mortgage. Reducing or eliminating debt like car payments, student loans, and credit cards can lower your debt-to-income ratio and increase your credit score. That makes you a better borrower in the eyes of mortgage lenders, helping you get a better interest rate and pay less for your new home.

If you’re ready to apply for a mortgage or you need help reaching your homeownership goals, contact the mortgage team at FirstCapital Bank of Texas. Our home buying experts can evaluate your unique financial situation and find the right mortgage for you.

Want more financial tips to make this year your best year? Check out our guide to create a financial plan for the new year.