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How to Save Money for a House in 6 Months: A Comprehensive Guide

Housing
Published: 12 months ago, Last Updated: 6 months ago
Daniel Brown
Writer: Daniel Brown
Jackson Rhodes
Reviewer: Jackson Rhodes
Listen minutes

In a perfect world, buying a house would be as easy as picking out a new pair of shoes. Yet, we all know that real-world scenarios are far from that. The road to homeownership requires preparation, patience, and a sizable savings. 

If you’re looking to buy a house quickly, the challenge is clear: how to save money for a house in six months. Keep in mind that saving a sizable down payment to purchase a home in six months is a challenging endeavor – in most cases, it will take much longer to save enough to buy a house.

Nevertheless, let’s break down the process and explore actionable ways that can help prepare you to buy a house in six months.

Research the Market: Knowledge Is Power

Understanding the real estate market can prepare you to buy a house in six months. It can provide a realistic picture of what’s available in your price range and equip you with the knowledge to make informed decisions. So, let’s delve deeper into why and how you should research the market:

Monitoring market trends can help you discern whether conditions favor buyers or sellers. Typically, a buyer’s market is characterized by high inventory (many homes for sale) and low prices due to lesser demand, offering more negotiation power to the buyer. 

In contrast, a seller’s market often features higher prices and quicker sales due to high demand and limited inventory. One way to approach this is to monitor the rise and fall of housing prices in your area of interest. These trends can serve as valuable indicators for determining when your savings may have more purchasing power.

Understand Mortgage Rates

Understanding how mortgage rates are determined and how this can impact your savings is fundamental to your home-buying journey. Mortgage rates, which greatly influence your monthly payments and total home cost, are determined by your credit score, down payment, loan type, and the current state of the economy. 

Close up on approved mortgage application

A down payment is the upfront payment you make when purchasing a home. Generally, a higher down payment can lead to lower mortgage rates, reducing risk for the lender. Also, when you’re beginning the purchasing process, applying for mortgage pre-approval can give you an estimate of what mortgage rate may be extended to you. 

Identify the Type of Home You Want

Are you interested in a single-family home, a townhouse, or a condo? Each property has its own considerations, like maintenance costs, amenities, and homeowners association fees. Understanding what suits your lifestyle and budget best will help you narrow down your choices.

Understand Housing Prices

Once you have a clear picture of your budget and an idea of what you’re looking for, start exploring which neighborhoods and homes are within your reach. This would mean comparing the average home prices in your preferred areas and understanding what houses are accessible to your budget. 

Remember, your budget should guide your options. Websites such as Zillow or Trulia can provide helpful information regarding home prices in various neighborhoods and help you align your expectations.

Neighborhood Research

Examining your preferred neighborhoods more closely can help narrow your search and provide a clearer idea of what’s affordable. Consider commute times, school districts, safety, and local amenities, as they greatly influence your quality of life and the value of your property. 

Keeping tabs on these aspects can guide you toward making a more informed decision. Websites such as NeighborhoodScout can be a good starting point.

Familiarize Yourself With the Buying Process

Knowing what to expect during the home-buying process can reduce stress and prevent surprises. This includes applying for mortgage pre-approvals and understanding the role of real estate agents, home inspections, appraisals, and closing costs. 

Consider Hiring a Real Estate Professional

A real estate professional can be an indispensable ally when purchasing a house, thanks to their specialized knowledge and experience. This expertise includes a deep understanding of market trends, access to an inventory of homes for sale, a thorough familiarity with the home buying process, and experience negotiating prices for their clients.

Home buyers shaking hands with real estate agent

The average commission for real estate agents typically ranges between 5% and 6% of the home’s selling price. However, remember that not all real estate services are commission-based. Some agents may charge a flat fee or employ a sliding scale, depending on the complexity and cost of the property. Always clarify the agent’s fee structure upfront to avoid surprises.

In addition to assisting in negotiation and understanding the market, an agent also takes on several responsibilities. These might include coordinating viewings, arranging open houses, dealing with other realtors or sellers, and helping you understand and navigate any paperwork. 

Determine Your Savings Target: Aim With Precision

Calculating your savings goal is more than just pulling a number out of thin air; it requires careful consideration and research. Here’s how to determine how much you’ll need to save for your new home:

Identify Your Price Range

The initial step in your home-buying journey is establishing a price range that aligns with your interests and financial capacity. Websites like Zillow or Redfin can give you an idea of home prices in your desired area. This information can be helpful when seeking a mortgage pre-approval, as it provides a realistic estimate of what you can afford and what your loan request may look like. 

Securing Mortgage Pre-Approval

Initiating your home-buying journey with a mortgage pre-approval provides a clear understanding of the loan amount you may qualify for, the terms, and the interest rate. Mortgages typically range between 15 and 30 years, and the interest rate is either fixed or adjustable. A pre-approval can guide you toward a reasonable price range for your prospective home, aligning your search with your financial abilities.

Calculate Down Payment

The down payment for a home usually falls within 10% to 20% of the property’s total cost and requires upfront payment. Consequently, the down payment should constitute a significant portion of your savings goal.

Allocating for Inspection Costs

A thorough home inspection can uncover potential issues with the property that may necessitate repairs or maintenance.

Close up on home inspection checklist

These inspections are necessary for understanding the home’s condition and can prevent unforeseen expenses in the future, making them a key element in your pre-purchase financial planning. Allocating a percentage of your savings to an inspection fund can help prevent overspending in the home-buying process. 

Factor in Closing Costs

The fees and expenses you’ll pay when closing the deal on your home range from 2% to 5% of the mortgage amount. To estimate these costs, you can multiply your projected loan amount by a value within this range. 

For instance, if your loan amount is $200,000 and you anticipate closing costs at around 3%, you’d calculate $200,000 x 0.03, which equates to $6,000 in closing costs. Bear in mind that this calculation provides a general guideline – actual costs may fluctuate based on location, lender fees, and loan type.

Considering Broker or Agent Fees

If you hire a real estate broker or agent, consider factoring in their fees as part of your home-buying budget. These professionals typically charge a commission, usually a percentage of the home’s sale price. Therefore, if you engage a broker or agent, include their anticipated fees in your financial planning to ensure a realistic savings goal.

Incorporating Homeowner’s Insurance

Homeowner’s insurance protects your home from damage due to unexpected events like fires or storms and is typically required when purchasing a house. Costs can vary based on location, home value, and coverage level, but a typical range is between $300 and $1,000 per year. 

Accounting for Property Taxes

When planning your budget, pay attention to property taxes; they contribute significantly to your ongoing expenses. These are recurring expenses based on the value of your property and local tax rates. Rates vary significantly by location but typically range from 0.2% to 2% of your home’s value per year. Research the tax rates in your area to build a more accurate budget projection.

Start a Side Hustle: Accelerate Your Savings

Ready to transform your dreams of homeownership into reality at warp speed? It’s time to explore financial side hustles – not those involving moonlighting or working overtime, but strategies that turn your savings into a powerhouse. 

You may have seen some ways to make extra money, but did you know you can also supercharge your savings without taking on another job? Here are some savings strategies that can help you boost your finances and save money for a  home in six months: 

Invest in High-Yield Savings Accounts

Traditional savings accounts offer minimal interest, around 0.1%. But what if your money could earn more while being safe and accessible? Online banks like Ally, Discover, and CITI Bank offer high-yield savings accounts with interest rates significantly higher than the national average. Currently, high-yield savings accounts can offer rates as high as 4% – a significant uptick compared to their traditional counterparts.

Close up on high-yield savings account and online banking app

Many high-yield savings accounts compound interest daily and deposit all interest earned monthly. While rates can fluctuate based on the economy’s state and the specific bank’s policies, the potential to earn more is considerable. It’s like promoting your savings – they work the same hours but bring home more money. 

Become a Dividend Investor

Owning shares in a company can be more than waiting for stock values to increase so you can sell them for a profit. Some companies, like Coca-Cola, Johnson & Johnson, or McDonald’s, pay dividends – a part of their profits are distributed to shareholders. This passive income can be reinvested in stock or saved towards your house fund. Brokerages like Vanguard, Fidelity, or Charles Schwab can help you start your dividend investment journey.

Dividends are typically distributed quarterly, but some companies may pay them monthly or semi-annually. The dividends you receive are usually based on the number of shares you own and the company’s dividend rate. The average dividend yield ranges from 2% to 6% but can vary significantly across companies and sectors.

Some brokerages allow for the purchase of fractional shares, which means you can start investing even if you don’t have enough to buy a whole share.

There is no minimum period of ownership for any dividends, so they could be resold a few months after purchasing to contribute towards a house. If the share price has appreciated during that time, you could realize a capital gain. However, the stock market can be unpredictable, and you should understand that investments can also depreciate.

It’s advisable to research or seek professional advice to understand the full implications of your investment decisions.

Explore Exchange Traded Funds (ETFs)

An ETF is an investment fund you can buy or sell on the stock market, just like a single stock. However, unlike a single stock which represents just one company, an ETF represents a collection of different stocks or bonds. Investing in an ETF allows you to own a range of assets without buying each individually, which could be an efficient way to diversify your investment portfolio.

Many ETFs track an underlying index. An index is like a measuring tool for the stock market. It’s a group of stocks that represents a specific part of the market. For example, the S&P 500 is an index that includes 500 of the largest companies in the U.S., like Amazon, Apple, and Microsoft.

When an ETF tracks an index, like the S&P 500, it aims to perform as well as that index. So, if the S&P 500 index goes up, the ETF that tracks it should also go up. This way, the ETF allows investors to gain broad exposure to a particular part of the market without buying each individual stock or bond within that index.

And there are many types of ETFs that track many different indexes. Some focus on technology companies, others on companies in Europe or Asia, and some might follow a specific investment style. This means you have a lot of options when choosing which ETF to invest in.

Man investing in ETFs

The initial investment cost for ETFs depends on their market price at the time of purchase. Some brokerages allow purchasing fractional shares of ETFs, which can lower the entry point for investors. You can hold ETFs as long as you want, whether for a few months or several years, making them flexible for short-term saving or long-term investing.

Moreover, many ETFs do offer dividends. If the securities in the ETF pay dividends or interest, those earnings are typically passed along to the ETF shareholders. The frequency of these payments can vary, but it’s often on a quarterly basis. However, some ETFs may pay dividends monthly. These dividends can be a source of income, which can be reinvested or saved towards your home fund.

Like all investments, ETFs come with risks, including the potential for loss. Therefore, ensure you research or seek professional advice before investing.

Try Robo-Advisors

If you plan to save enough money to buy a home in six months, employing robo-advisors can be a strategic step. Investing might seem complex, especially if you’re new to it or have limited time. This is where robo-advisors come in. Platforms like Betterment, Wealthfront, and Ellevest use algorithms to manage your investments, helping your savings grow more efficiently. Here’s how it works: 

Robo-advisors use computer algorithms based on Modern Portfolio Theory (MPT) to optimize your investments. You’ll start by inputting your short-term financial goals – in this case, saving for a home – and your risk tolerance. The algorithms then distribute your investments across a diversified portfolio. This portfolio typically comprises low-cost exchange-traded funds (ETFs) spanning different asset classes, such as stocks and bonds. Diversification can help balance risk and return according to your specified preferences.

After the initial setup, robo-advisors take over the ongoing management of your portfolio. They automatically rebalance your investments, ensure they remain aligned with your objectives, and make adjustments in response to market changes. This means they might buy or sell ETFs within your portfolio to maintain the desired level of risk and potential return.

Using robo-advisors can be particularly beneficial for aspiring homeowners looking to maximize their savings relatively quickly. It’s like having a personal financial advisor working round-the-clock to grow your home savings, but without the high fees typically associated with traditional financial advisory services. With robo-advisors, your money continuously works for you, trying to bring you closer to buying your dream home.

Invest in Bonds

Bonds are loans you provide to organizations, usually the government or corporations. In return, these entities agree to pay you back the loan amount, known as the principal, and interest after a specified period or maturity date. Bonds have a relatively lower risk compared to stocks, which may make them a safer choice for accumulating savings to buy a home.

Close up on U.S. Treasury bonds

There are several types of bonds, each offering different benefits and catering to varying financial goals. Here are a few examples:

  • Treasury Bills (T-Bills): These are short-term securities issued by the U.S. government. They come in maturity ranges of four weeks, eight weeks, 13 weeks, 26 weeks, and 52 weeks. These are considered among the safest investments because they’re backed by the full faith and credit of the U.S. government. Benefits include very low risk and no state or local taxes on the interest earned. However, the return will be relatively modest, given their safety.
  • Municipal Bonds: These are issued by states, cities, or counties to finance public projects. The maturity terms can range from a few months to over 30 years. The interest earned on these bonds is usually exempt from federal taxes and possibly state and local taxes, which can make the effective return higher.
  • Short-Term Corporate Bonds: Corporations issue these to raise money for various business purposes. Short-term corporate bonds typically mature in one to five years. These bonds have a higher risk than government and municipal bonds, but they also offer higher interest rates. They can provide a decent return without a long-term commitment.
  • Money Market Funds: These are a type of mutual fund that invests in very short-term, high-quality investments like Treasury bills and short-term corporate debt. They aim to maintain a stable value and can be sold at any time. Money market funds are considered very low risk, and they can offer a higher return than a regular savings account. However, note that they’re not insured by the FDIC.

Bonds typically don’t pay dividends. Instead, they pay semi-annual interest, which can be reinvested or saved towards your home fund. Regular interest payments can be a source of stable income, and the principal’s return at maturity can substantially boost your savings. 

Leverage Certificates of Deposit (CDs) for Safe Growth 

A CD is a type of savings account offering a fixed interest rate over a specified period or term. When you open a CD, you agree not to withdraw your money until the end of this term, which could be anywhere from a few months to several years. In return for this commitment, banks typically offer a higher interest rate on CDs than regular savings accounts.

Here’s how investing in a CD could be beneficial for someone looking to buy a home in six months:

  • Guaranteed Return: One of the major benefits of a CD is that the interest rate is fixed. If you choose a six-month CD, you’ll know exactly how much money you’ll have for your home purchase in six months.
  • Safety: CDs are very safe investments. They’re insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000, so even if the bank fails, your money is protected.
  • Higher Interest Rates: CDs often offer higher interest rates than regular savings accounts. This means you can grow your savings faster.
  • No Temptation to Spend: Because you agree to leave your money in the CD for the full term, you won’t be tempted to spend this money on something else. This can be helpful if you’re saving for a specific goal, like buying a house.
  • Flexibility: There are many different term lengths available for CDs, including six-month CDs. This can be aligned with your home-buying schedule.

However, be aware of the limitations. If you need to withdraw the money from the CD before the end of the term, you’ll typically have to pay an early withdrawal penalty. This could eat into your interest earnings or even your original deposit.

Wrapping Up

There you have it – a roadmap on how to save money for a house in six months. This six-month plan is no small feat – it demands dedication, discipline, and perseverance. But with these actionable steps, you’ll be well-equipped to navigate this journey to becoming a homeowner.

With the right mindset and a concrete plan, the dream of homeownership can become your reality. Start today and make each day count towards your goal.

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