Becoming a homeowner is super exciting, you guys! There are so many fun decisions to make. City or country? Ranch house or townhome? Fixer-upper or move-in ready?
But no matter how you answer those questions, the most important thing is buying a house you can actually afford—and making a good home budget is the biggest key to making that happen.
Plus, budgeting for a house doesn’t require some kind of fancy degree in economics or finance. Nope, no expertise required. You just need to follow five simple steps.
When I was in my early thirties, just like many of you reading this, I started thinking seriously about buying my first home. The big question that kept me up at night was: “Is it okay to empty my savings account for a down payment?” It’s a common dilemma faced by first-time homebuyers, and today I want to share some insights that might help you make this important decision.
The Temptation to Drain Your Savings
Let’s be honest – the allure of homeownership is strong. You get to build equity, enjoy stability, potentially benefit from tax advantages, and have the freedom to customize your living space. These benefits can make emptying your savings account seem like a worthwhile sacrifice.
But is it really a good idea? While many first-time homebuyers do end up depleting their savings to make that dream purchase, financial experts consistently advise against leaving yourself with nothing in the bank
How Much Should You Have Left After Buying a Home?
According to financial experts at City National Bank, ideally, you should have at least 3-12 months’ worth of expenses saved in your emergency fund even after making your home purchase. This gives you a cushion for unexpected costs that inevitably arise with homeownership
If you’ve spent all your savings on your down payment and getting settled in it’s time to revisit your budget ASAP. Being a homeowner without any financial safety net puts you in a vulnerable position.
The Real Costs of Homeownership
When calculating how much to keep in savings, remember that owning a home involves more than just a mortgage payment. You’ll need to account for:
- Mortgage & PMI: Your monthly payment including possible private mortgage insurance
- Homeowner’s insurance: Protecting your investment
- Remodeling or upgrades: Making the home truly yours
- HOA dues: If applicable in your neighborhood
- Furniture: Filling your new space
- Property taxes: An unavoidable expense
- Maintenance & repairs: The surprises that always seem to pop up
As one homeowner humorously told me, “I bought my dream home and two weeks later the water heater died. My credit card became my emergency fund, and I’m still paying for that mistake.”
The Risks of Having No Savings After Buying a House
When you empty your savings for a house purchase, you face several potential drawbacks:
1. Reduced Financial Security
Without an emergency fund, unexpected expenses can force you into high-interest debt. A leaky roof, broken HVAC system, or sudden job loss can quickly become financial nightmares without savings to fall back on.
2. Limited Options for Home Improvements
Most new homeowners discover they want to make changes to their property. Without savings, you might be unable to fix issues or make improvements that would increase your comfort and the home’s value.
3. Increased Stress
Living paycheck to paycheck while managing a mortgage creates significant anxiety. The peace of mind that comes with having savings shouldn’t be underestimated.
4. Overlooked Other Financial Goals
Homeownership is just one financial goal. Depleting your savings might compromise retirement planning, education expenses, or other important objectives.
Real Life Example: Jamie’s Story
My friend Jamie emptied her savings to buy her first home in 2022. Six months later, her car’s transmission failed, costing $3,200. With no savings, she had to use credit cards with 22% interest. “I love my home, but I wish someone had told me to keep at least a few thousand dollars in savings,” she told me recently.
Smart Ways to Save Money After Becoming a Homeowner
If you’ve already purchased a home and need to rebuild your savings, or if you’re trying to avoid depleting your savings completely, here are some effective strategies:
1. Shop Insurance Carriers
Compare rates for all your insurance needs – homeowner’s, auto, life, and health. Significant savings can often be found by shopping around.
2. Buy Used Furnishings and Appliances
Furnishing your new home doesn’t have to break the bank. Look for quality used items through online marketplaces, thrift stores, or estate sales.
3. DIY When Possible
Take on lawn care and simple home maintenance yourself instead of hiring services. You’ll save money and might even discover a new hobby!
4. Regular Maintenance to Prevent Costly Repairs
Something as simple as changing HVAC filters regularly can save on energy bills and prevent expensive system failures.
5. Embrace Home Entertainment
Instead of going out, enjoy movies and meals at your new home. This saves money while helping you appreciate your investment.
6. Consider House Hacking
If you have extra space, renting out a room or portion of your home can generate income to rebuild your savings.
7. Reduce Utility Costs
Install LED lights, use energy-efficient appliances, and be mindful of water usage to lower monthly bills.
8. Take Advantage of Tax Benefits
Work with a tax professional to ensure you’re claiming all available homeowner tax deductions.
A Balanced Approach to Home Buying
Rather than completely emptying your savings, consider these more balanced approaches:
1. Aim for a Reasonable Down Payment
While 20% down is ideal to avoid PMI, smaller down payments may make more sense if they allow you to maintain emergency savings.
2. Explore Assistance Programs
Many states and cities offer first-time homebuyer programs that can reduce the amount you need to save.
3. Consider a Less Expensive Starter Home
Your first home doesn’t need to be your forever home. Starting with a more modest property allows you to maintain savings while building equity.
4. Continue Saving While House Hunting
Delay your purchase a few more months while aggressively saving. This can help you build a larger cushion before taking the homeownership plunge.
When You’re Ready to Buy
According to financial advisors, you’re ready to buy a home when you can:
- Make your desired down payment
- Cover all closing and moving costs
- Have a few thousand dollars remaining for emergencies
My Personal Advice
Having gone through this journey myself, I believe homeownership is wonderful but not worth the cost of complete financial vulnerability. In my case, I decided to wait an extra six months to save more before buying, which meant I had about four months of expenses still in the bank after closing on my house.
Three months later, when my refrigerator unexpectedly died, I was incredibly grateful for that decision. I was able to replace it without going into debt or experiencing financial panic.
The Bottom Line
While it’s common for first-time homebuyers to significantly deplete their savings, leaving yourself with absolutely nothing in the bank is risky. Aim to maintain at least a small emergency fund even after making your home purchase.
Remember that homeownership is a marathon, not a sprint. Making wise financial decisions now will help ensure your home remains a source of joy rather than financial stress in the years to come.
What’s your take? Have you faced this dilemma, or are you considering emptying your savings for a home purchase? I’d love to hear your thoughts in the comments below!
Disclaimer: This article provides general information and should not be considered financial advice. Always consult with a qualified financial advisor before making significant financial decisions.
Step 2: Write Down Your Income
Once you’ve set your savings goal, the next step in budgeting for a house is writing down your income (after taxes). After all, you can’t make a budget if you don’t know how much money you’ll have to spend!
So, sit down and add up every source of income you get each month. That includes your salary, any side hustles you have, and any other money you plan to make during the month. You want to account for every dollar you’ve got to work with.
Here’s what this step will look like for our example couple:
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Should I Pull From My Savings To Pay Off My House?
FAQ
Should you invest or save for a home?
There’s no one-size-fits-all answer when it comes to saving versus investing for a home. The right approach depends on your timeline, financial goals, and comfort with risk. If you plan to buy within the next one to two years, putting your money in a high-yield savings account is the safer approach.
How do you save money on a house?
A down payment is often the biggest expense, but you’ll need money for closing costs and moving, too. Small steps add up. Scour your budget for ways to save. Make your savings automatic through direct deposit. Put your savings to work in a high-yield savings account, money market account or a certificate of deposit.
How can I save money on a house down payment?
Putting a clear plan in place could help you save the money you need for a house down payment. Whether you’re buying your first home or looking to upgrade to a new property, these tips can help you get there. Feed your brain. Fund your future. 1. Figure out how much house you can afford
Can you save for a house?
Saving for a house is hard work (and might take a bit more time than you want it to), but you can do it! And we’ll show you how. Like with any task that seems impossible, try breaking down saving for a house into smaller steps. (Remember, that’s how you eat an elephant—one bite at a time!)
Should you hold down payment cash before buying a home?
For those planning to purchase a home within the next 3 years, Fidelity suggests holding down payment cash in checking, regular savings, or high-yield savings accounts—or in cash-like investments such as money market funds or certificates of deposit (CDs) that will mature before you anticipate needing the money.
How do I save money for a first-time home buyer?
Small steps add up. Scour your budget for ways to save. Make your savings automatic through direct deposit. Put your savings to work in a high-yield savings account, money market account or a certificate of deposit. See if you qualify for first-time home buyer assistance, like grants, low-interest loans or tax credits.
How much should I have in my savings before buying a house?
… size of your down payment may vary depending on the terms of your mortgage, it’s considered best practice to save at least 20% of your home’s purchase price
At what age should you have $100,000 in savings?
Kevin O’Leary: By Age 33, You Should Have $100K in Savings — How To Get Started. If you’re just starting out in your career, $100,000 might seem like a lot of money. After all, the median salary of a 20- to 24-year-old, according to Bureau of Labor Statistics data, is just $37,024.
Is $20,000 a lot to have in savings?
Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund. When the occasional rainy day comes along, you’ll be financially prepared for it. Of course, $20,000 may only go so far if you find yourself in an extreme situation.