Your dream house is out there—how do you save for it?

Picture it: a place with your own walls. A living room that you can paint and design however you want. A yard with a perfect spot for a garden. A basement just begging for a foosball table.

Dreaming about owning a house is easy enough, but how do you save for a down payment, and how long will it take? And can you save while renting, or is the twin-size bed at your parents’ house calling your name?

Rest assured, you can stick to a budget and start saving for a house right now. Doing some research and self-reflection are the first steps to put your goals of home ownership in motion.

Get an idea of house prices in your area

Before you can start saving for a house, you have to know how much it might cost. For lots of homebuyers, researching house prices is when they start to really narrow down what they’re looking for—and where.

You might want a house close to downtown, but your budget says otherwise. On the other hand, you might realize you can afford a bigger house or more land than you thought. Looking at house prices might cause you to pivot and start thinking about a new area entirely. Think about your wants and needs in a house, balance those with what you can afford, and let that guide your research (as well as where you look).

PS: Remember to research property taxes and homeowner’s insurance rates for your area, too, so you don’t end up with any financial surprises.

Use the 28% rule as a guideline

There’s a general rule of thumb that people “shouldn’t spend more than 28% of their gross monthly income as their mortgage payment,” says Jon Giles, the Head of Consumer Direct Lending at TD Bank. This mortgage payment includes property taxes and homeowners insurance—it’s important to factor in all housing expenses when figuring out the 28% rule.

“But what I always stress, though, is for everybody to understand their own circumstances,” says Giles. He recommends asking yourself the following questions when coming up with budget and figuring out what you can afford for a mortgage:.

  • What are my other expenses?
  • What are my long-term goals?
  • Do I have hobbies or other things that require more expenses?
  • Have I started to contribute to my retirement savings account?
  • If I’m renting now (or have rented), do I feel comfortable with this monthly payment? Could I spend a little more? Do I need to spend a little less?

The 28% rule is a great guideline, but it’s important to look at the whole picture. “Make sure you sit down, look at your own specific circumstances,” advises Giles.

Build up a savings plan for a down payment…

You might qualify for loans (such as a Federal Housing Administration or FHA loan) that only require 3.5% down. But as Giles says, “Typically, a down payment is 20%.” On a $200,000 home, a 20% down payment means paying $40,000 up front. As you’re looking at houses in the area you want to buy, start to think about what 20% down looks like (and how much you need to save). Once you have a relative number in mind, you can start building a budget to help hit that goal.

In terms of how long it takes to save for a house, well, that’s kind of up to you. “Think about your timeframe,” says Giles. “If I want to save $40,000, and I want to buy a home in two to three years, how much do I need to save per month to make that happen?”

…but save even more for unplanned expenses

It’s almost a guarantee that you’ll have extra costs when first buying a house. Be sure to keep in mind extra costs like:

  • Real estate agent commissions
  • Escrow fees
  • Homeowners association (HOA) costs, if applicable
  • Unexpected or immediate repairs

You might not end up working with a real estate agent or, say, buy in a neighborhood with an HOA. There’s a good chance you won’t have to pay for all of these extra costs, but it’s worth it to have enough savings just in case. That way, if the water heater suddenly breaks down a week after you move in, you’ll be prepared.

Talk to a lender

Even while you’re saving for a down payment, it’s a good idea to get prequalified for a mortgage “before you get too deep into the home search process,” recommends Giles.

People don’t dream of mortgages—they dream of buying a home. That said… people should consult a lender or go online and understand what mortgage products are available. What are the interest rates? What are the typical payments and costs associated with different values of homes?”

Getting prequalified is also great because it tells sellers you’re serious about buying and that you have the financial backing to do so. Look into the mortgage lending process and start preparing your financial information—this includes your current debt (if you have any), your annual income and any additional assets such as any investments or other real estate .

Remember that saving for a house is ongoing

Saving money for a down payment is a great start, but you'll need to keep saving for the long haul, too. One day, you’ll need to replace the roof. You’ll likely need to service your heating and/or air conditioning unit to make sure your appliances are in good working order. And, of course, you’ll still need to manage your daily living expenses (groceries, gas and other essentials) while enjoying your new place. “I'll never tell my kids to buy a home for as much as they qualify for," Giles explains, "because that means things are going to be tight.”

So, remember it takes time to save up for a house—all the best things in life take time. One day, you’ll be planting seeds in your garden or hanging up things in the living room that make you happy. You’ll have a place to call your own.

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This article is based on information available in February 2022. It is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.