How To Budget And Save For Your First Home Purchase

Purchasing your first home is a significant milestone and a major financial commitment. 

It requires careful planning and disciplined saving to ensure you can comfortably afford your new home. 

a person sitting at a table in a room

We will walk you through vital steps to budget and save effectively, helping you transition from renting to homeownership without financial strain. 

By setting realistic goals, understanding your financial situation, and employing smart saving strategies, you’ll be well-prepared to make your dream of owning a home a reality.

Introduction To Buying A Home

Buying a home involves more than just finding the perfect property. 

It requires a comprehensive understanding of your finances, the housing market, and the home buying process itself. 

As a first-time homebuyer, it’s paramount to start with a clear plan, including setting a budget, saving for a down payment, and preparing for additional costs like closing fees and moving expenses. 

First-Time Home Buyers

For first-time home buyers, the process can seem overwhelming. 

With the right preparation and resources, you can navigate this journey successfully. 

Begin by researching loan programs tailored for first-time buyers, which often offer benefits like lower down payments and favorable interest rates. 

According to Ohio Real Estate Source, programs such as FHA loans, VA loans, and USDA loans are excellent options for first-time buyers because they require lower down payments and sometimes even offer down payment assistance​.

It’s also important to understand your credit score and take steps to improve it if necessary. 

A higher credit score can significantly affect the mortgage rates you’re offered, potentially saving you thousands over the life of the loan. 

Utilize online tools to monitor your credit and address any discrepancies or issues promptly.

Once you have a handle on your credit, use a mortgage affordability calculator to determine how much home you can realistically afford. This will help you set a clear savings goal for your down payment and closing costs. 

Remember, it’s not just about saving for the purchase price but also for additional expenses like home inspections, insurance, and potential repairs​.

white and red wooden house miniature on brown table

Setting A Budget

Setting a budget is a critical step in the home-buying process. 

Start by reviewing your current financial situation, including income, expenses, and existing debts. 

Calculate how much you can comfortably allocate towards housing each month without stretching your finances too thin.

A good rule of thumb is to keep your housing costs (mortgage, taxes, insurance) within 28-30% of your gross monthly income.

After determining your budget, focus on building your savings. 

Aim to save at least 20% of the home’s purchase price for a down payment to avoid private mortgage insurance (PMI) and secure better loan terms. 

If saving 20% is challenging, many first-time homebuyer programs allow for lower down payments, but you should still strive to save as much as possible to reduce future financial burdens.

Consider setting up a dedicated savings account specifically for your home purchase.

Automate your savings by setting up regular transfers from your checking account to your home savings account. 

This way, saving becomes a seamless part of your financial routine​​.

Preparing For Additional Costs

Beyond the down payment, there are several additional costs associated with buying a home. 

These include closing costs, which typically range from 2-5% of the home’s purchase price, and cover expenses like loan origination fees, appraisal fees, and title insurance. 

Be prepared for these costs by researching and budgeting for them in advance.

Ongoing expenses such as property taxes, homeowners insurance, and maintenance costs. Set aside a portion of your budget for these recurring expenses to avoid any financial surprises after you move in.

An emergency fund specifically for home-related expenses can also provide a safety net for unexpected repairs or upgrades.

By following these steps and leveraging available resources, you’ll be well-equipped to budget and save for your first home purchase. 

With careful planning and disciplined saving, you can achieve your goal of homeownership and enjoy the many benefits that come with owning your own home.

Savings Options For Your First Home

When saving for your first home, selecting the right savings options can significantly impact how quickly you reach your goal. 

Let’s go over some effective strategies and accounts designed to help you accumulate the necessary funds efficiently.

First Home Savings Account (FHSA)

The First Home Savings Account (FHSA) is a powerful tool for first-time homebuyers. 

This registered plan allows you to save up to $40,000 tax-free, with an annual contribution limit of $8,000. 

Contributions to an FHSA are tax-deductible, similar to an RRSP, and the investment earnings grow tax-free. 

You can carry over any unused contribution room to the following year, making it easier to maximize your savings potential over time. 

FHSAs can be used to invest in various financial products, including stocks, bonds, and mutual funds, providing the potential for higher returns compared to traditional savings accounts​​.

Lifetime Isa (LISA)

For those planning to buy a home within the next five years, a Lifetime ISA (LISA) is an excellent option. 

You can save up to £4,000 annually, and the government adds a 25% bonus to your contributions, up to £1,000 each year. 

This means if you save the maximum amount each year, you could receive a £5,000 bonus over five years. 

LISAs can be set up as either cash or stocks and shares accounts, allowing you to choose between safer, lower-return savings or higher-risk, potentially higher-return investments. 

Be mindful of the restrictions: withdrawals for non-home purchase purposes before age 60 incur a 25% penalty​​.

High-Interest Savings Accounts

  • High-interest savings accounts are a straightforward and low-risk option for those who prefer not to invest in the stock market.
  • These accounts typically offer higher interest rates than standard savings accounts, helping your money grow faster.
  • Many banks provide regular savings accounts with competitive interest rates, sometimes requiring you to deposit a specific amount each month.
  • If you set up automatic transfers from your checking account, you can ensure consistent contributions to your savings without manual effort.
  • Look for accounts that offer the best rates and consider any associated fees to maximize your savings.


Embarking on the journey to homeownership requires more than just saving money; it demands a strategic approach to financial planning. 

In exploring various savings options like FHSAs, LISAs, and high-interest savings accounts, you can significantly enhance your ability to accumulate the necessary funds. 

Staying informed about government incentives and tax benefits can provide further financial advantages.