6 Ways To Save For a House on 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, it might feel like your income barely covers your everyday expenses, let alone saving up for a down payment on a house.
Saving for a house on an average salary is undoubtedly challenging, but it’s far from impossible. With determination and smart financial choices, your dream of homeownership can become a reality, even on an average salary. Here’s how.
Create a Budget
Before you embark on your journey to save for a house, it’s essential to set clear, achievable goals. Determine how much you need for a down payment and establish a timeline for reaching this goal. This will provide you with a clear roadmap and motivation to stay on track.
Track your monthly income and expenses diligently, and identify areas where you can cut back. Allocate a specific portion of your income toward your down payment fund.
Cut Unnecessary Expenses
“If you want to save for a house on an average salary, slash spending,” said David Bakke, housing expert at DollarSanity. “That 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.”
While you might 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 might involve canceling subscriptions, eating out less or finding more cost-effective alternatives for your regular purchases. These small sacrifices can add up over time and significantly boost your savings rate.
Temporarily Suspend Your Retirement Savings
“You can also cut back on retirement savings, although this is a dicey subject,” Bakke said. “If you do decide to go this route, make sure that you can get back on track with retirement savings as soon as you’ve purchased your home.”
Even if you maintain your retirement contributions, saving for a house should be a top priority in your budget. Treat it like any other essential expense, such as rent or utilities, and set up automatic transfers to your dedicated house fund each month. This approach ensures that you consistently contribute to your house fund and prevents the temptation to spend that money on other things.
Save Windfalls
Any unexpected financial windfalls, such as tax refunds, work bonuses or gifts, should go straight into your down payment fund. When you receive these unexpected chunks of money, it’s tempting to spend them right away, but setting these windfalls aside for your house fund will make a big difference. These extra injections of cash can give your savings a significant boost and help you reach your homeownership goal faster.
Consider a Roommate
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 both a rewarding and challenging way to share expenses. It can foster friendships, create lasting memories and provide a support system. But it also requires compromise and communication, skills which can be useful if you eventually buy a house with a spouse or partner. It might mean making some adjustments, but it’s a smart way to get closer to your dream of owning a home.
Consider an FHA Loan
FHA loans, or Federal Housing Administration loans, are government-backed mortgage programs designed to facilitate homeownership, particularly for individuals who may not have a lot of savings or pristine credit histories. These loans are known for their accessibility, allowing borrowers to secure a home with a lower down payment than is typical — as low as 3.5% of the purchase price.
FHA backing provides lenders with added confidence, making it easier for people to qualify for a mortgage. While FHA loans offer a pathway to homeownership for a broader 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 and loan combination and to negotiate good terms.
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