You should start saving for a house as soon as the desire to buy one crosses your mind.

Most people know that a home is probably the largest single purchase they'll ever make. But many first-time buyers underestimate the amount of cash they will need up front to purchase their dream home. A $200,000 home will require a cash outlay of about $16,000 at a bare minimum, according to realtor.com.

Breaking Down the Costs

First of all, there's the down payment. At the very least, it'll be 3.5% of the purchase price. That's the going rate for an FHA loan for lower-income earners. Those loans are hard to get. It's more likely that you'll qualify for a mortgage that requires 5%, 10% or even 20% down. The national average down payment, as of 2019, is 6%.

Key Takeaways

Set up a separate account for your home down payment costs.

  • Cut your costs, big and small, for one year.
  • Make a little money on the side if you can.
  • Deposit all your savings in your home account.

Then there are the closing costs required to complete the sale. These vary greatly because of differences in state and local regulations and taxes but typically they add up to between 2% and 5% of the home’s value.

And don't forget moving expenses, which can easily run into four figures for a pack-rat or a family.

$1,405

The average monthly rental price in the U.S. according to Yardi Matrix. That's a record high.

If you don’t have it, how will you save for it? Set up a separate house-buying account. Then follow any or all of these six suggestions for just one year and see how much you've got in the account.

Invest Your Windfalls

If you get a bonus at work, a tax refund, or some other unexpected sum of money, don't splurge. Put the cash in your house-buying account.

Get a Cheaper Place

If you're living in a rental now, consider moving to a smaller, less-expensive one, or getting a roommate to share the costs for your current place. A $300 reduction in monthly rent will save you $3,600 annually.

If you're single, consider living with your parents for a year. It's an emotionally tricky move, admittedly. But the average monthly rental price hit a record-high $1,405 in mid-2018, according to Yardi Matrix, an industry information service. By getting rid of that expense for just one year, you could save $16,860, a smidge above the rock-bottom closing costs for that $200,000 home.

Save Less for Retirement

Don't withdraw money from a retirement account or borrow against it. You'll regret it later. However, you might scale back your contributions a bit just until you get into that home.

For example, if you're contributing more than the company match in a 401(k) plan, congratulations on your smart planning, but maybe you should trim it back and put the extra cash into your house fund.

Cut the Luxuries

If you're saving for a house, you'll naturally be wary of making any big purchases on fancy vacations or expensive clothes. But watch the little stuff too. A fancy cocktail in a bar can cost $16 these days. Even if you keep it down to two drinks a week, that's $1,664 that you could be putting into your house fund over a year.

Budget your cash strictly, and put the savings in your home account.

Trim Routine Expenses

If you give it some thought, you might conclude that some of your monthly ongoing expenses can be eliminated. Cut the cord on cable television. Get a cheaper cell phone plan. Quit your gym and bicycle to work.

You may find you don't even miss these things, at least when you put the equivalent amount of cash into your home account.

Make More Money

Look for ways to earn a little extra money. Can you handle a part-time job? Do you have skills you can use in occasional freelance work? If so, put all of the extra pay into your house fund.