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How To Save For A Down Payment On A House

Erin Gobler10-minute read
PUBLISHED: February 24, 2022 | UPDATED: January 30, 2023

From closing costs to moving expenses to your new monthly mortgage payment, it can be expensive to buy a house. One of the largest costs you’ll have when you buy a home is your down payment, which is a percentage of the purchase price you pay out of pocket rather than financing with your mortgage.

A down payment is at least a few thousand dollars, meaning it’s important to start saving well before you’re ready to buy a home. Keep reading to learn how much you should save for your down payment, tips to help you save and more.

How Much Should You Save For A Down Payment?

A down payment amount is usually represented as a percentage of the purchase price. There’s no hard and fast rule for how much you must save for a down payment on a home. It comes down to the type of mortgage you’re borrowing and what you’re comfortable with.

You may have heard the traditional advice that you should have a down payment of 20% to buy a home. And while it’s true that putting down less than 20% is likely to result in you paying private mortgage insurance (PMI), most borrowers choose to put down less money.

For a conventional loan, your required down payment may be as little as 3%. For an FHA loan, the minimum down payment starts at 3.5%. Finally, other government-backed mortgages like VA loans and USDA loans don’t require a down payment at all.

Keep in mind that a larger down payment can lower your monthly housing cost, as it reduces the amount you have to finance and could help you avoid PMI. A larger down payment could also help you afford a more expensive home.

On the other hand, while a larger down payment might make sense at the time, be careful not to tie up your entire net worth in your home. It’s important to have money left over to serve as an emergency fund that you can access at any time.

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Saving For A Down Payment: 12 Home Buying Tips

Saving for a house down payment can feel burdensome and, at times, impossible. To help make your goal of homeownership possible, we’re sharing a few of our favorite tips to help borrowers save for their down payment and buy their dream home.

1. Determine Your Savings Goal

The first step of saving for a down payment is setting a specific savings goal. Not only will a specific goal help you know when you’re ready to buy a home, but it will also help you break down a specific savings plan.

When you’re deciding how much to save for your down payment, consider the price of the home you plan to buy. You can start by using a home affordability calculator, which will use your credit score and debt-to-income ratio to show you what you can afford.

Once you know how much you want to save, it will be easier to create a savings plan and make room for your down payment savings in your monthly budget.

2. Create A Budget

A budget will be one of your most important tools while you’re saving for your down payment for a few reasons.

First, a budget can help you figure out how much you can save each month for your down payment. Based on your monthly income and spending, you’ll see what a realistic amount is that you can save each month.

A budget can also help you find places to cut back to save even more. You might create your first budget and learn that you consistently overspend on food. Once you’re aware of the problem, you can start changing your habits, clearing up more room in your budget for savings.

Finally, your budget can help you decide if you should buy a house. You can run a sample budget to see how your new mortgage payment, utilities, and other bills would fit into your current spending plan. You might learn that there’s not enough room in your budget for those added expenses and that you’ll need to save even more to be prepared for your home purchase.

3. Add Your Down Payment Savings To Your Budget

Once you’ve decided how much you want to save and you’ve started creating your budget, be sure to add a line item for savings in your budget. It’s not enough to assume you’ll transfer whatever is left over at the end of the month to your down payment fund. Instead, you should treat savings as a monthly expense that’s nonnegotiable, just like any other.

The best way to incorporate your down payment savings into your budget is to “pay yourself first.” When you pay yourself first, you prioritize savings before spending. Rather than saving what’s left at the end of the month that you haven’t spent, you spend only what’s left after you save.

4. Open A Separate Savings Account

When you start saving for your down payment, open a new savings account to keep the money in. There are a few different benefits to using a separate savings account rather than your normal savings account.

First, plenty of online financial institutions offer high-yield savings accounts that allow you to earn significantly more on your savings than a traditional bank. While you won’t get rich from the interest in a high-yield savings account, you’ll earn a bit of extra money to help you on your savings journey.

Another reason to keep your down payment savings in a separate account is that it won’t be easily accessible to spend on other purposes. Sure, you could keep your savings in your checking account or in a savings account attached to your checking account. But if something came up you wanted to use the money for, there would be nothing stopping you in the moment.

But with a separate savings account, it would take a few days to transfer the money over. That pause would prevent you from making impulse purchases and squandering your hard-earned down payment savings.

Additionally, because savings accounts limit the number of withdrawals you can make per month, you’re limited as to how much you can take from your down payment savings for other purposes.

5. Automate Your Savings

We’ve already talked about using the “pay yourself first” strategy to save more money for your down payment. Automating your savings is an even more effective way to do just that.

When you automate your savings, you set up an automatic transfer from your checking account to your savings account. You could make this transfer on the first of each month, the day after you get paid, or any other time that works with your payday schedule.

By setting up these automatic transfers to your down payment fund, you never have to think about it. Even in the months you don’t feel like saving or aren’t feeling motivated by your goals, you’re still saving.

6. Pay Down Debt

It may seem counterproductive to focus on paying down debt while you’re trying to save for a down payment. And while it’s true that prioritizing debt will push your savings goals back a bit, it’s also a necessary step to buying a home.

There are a couple of reasons you should focus on paying down debt – especially high-interest debt – when you’re saving for a down payment. First, paying off debt will free up more money in your monthly budget to put toward savings.

Second, eliminating that high-interest debt will make it easier to qualify for a mortgage and to afford your new mortgage payment. It will help both your debt-to-income ratio and your credit score, both of which are critical in qualifying for a mortgage and getting a good interest rate.

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7. Cut Extra Spending Costs

Chances are, you have a few areas in your budget where you can afford to cut back while you’re saving for your down payment. For example, maybe you set aside money every month for travel. While you’re saving for your down payment, you could temporarily suspend your travel savings to help you buy a home faster. Once you save your full down payment, you can go back to saving for vacations like you were before.

Another easy way to cut costs is to look for unused subscriptions in your bank statement. It’s happened to all of us: You sign up for a free trial and then forget to cancel your subscription before the trial ends. Suddenly, you’re paying for a subscription for months — or even years — before you catch it. When you start saving for your down payment, sit down and comb through your bank statements to try to catch any unused subscriptions you can reallocate the money for.

Finally, look through your budget for other areas you can cut back, either temporarily or permanently. You might find that you’re overspending on food, clothing, or something else. While you may have struggled to stop spending in those areas before, buying your dream home could be just the motivation you need.

8. Increase Your Income By Getting A Side Hustle

There will come a time when you simply can’t cut back your spending anymore. At that point, you can increase your down payment savings by increasing your income. Even if you can’t increase your income at your full-time job, consider picking up a side hustle like ride-sharing, grocery delivery, dog walking, or any of the other gig opportunities available today.

9. Reduce Car Payments And Other Bills

There may be other bills you can reduce to help you save for your down payment more quickly. For example, the average monthly cost of a new car loan is $600. If you could reallocate that money to your savings, you could save more than $7,000 per year just from your car payment. While you may not be able to eliminate a car payment altogether, you could trade your car in for a more affordable model to save several hundred dollars per month.

In addition to your car payment, there may be other bills you can save on. Some ideas include negotiating with your internet provider, cutting cable in favor of more affordable streaming services, or reducing your energy usage to save on your electricity bill.

Whatever small steps you can make to spend less on your monthly bills will help you free up money in your budget for saving for your down payment.

10. Use Windfall And Unexpected Profits

Throughout the year, there are several opportunities to add financial windfalls into your savings account. For example, many people get tax returns each year. And during the pandemic, the government provided economic impact payments (aka stimulus checks).

Another example of a windfall happens for people who are paid biweekly. If you get a paycheck every other week, then two times per year, you’ll get three paychecks in a month instead of the normal two. You can use that unexpected third paycheck to save for your down payment.

11. Stop Paying Toward Your Retirement Temporarily

If you’re putting a portion of your monthly income toward your retirement fund, you might consider temporarily pausing or reducing those contributions while you’re saving for your down payment.

It’s important to note that by cutting back your retirement savings, you may be reducing the amount you’ll have available to you at retirement. And if you expect to be saving for a home for many years (rather than months) then it’s probably not worth pausing those contributions.

It’s also worth considering whether you get an employer match. If so, you might want to contribute at least enough to maintain your match, since it’s literally free money.

Finally, avoid withdrawing money from your retirement account to pay for your down payment. Not only could you be subject to taxes and early withdrawal penalties, but you’ll also damage the long-term growth of your retirement savings and rob your future self.

12. Find Down Payment Assistance

If you’re saving for the down payment on a home, you may not have to do it alone. There are many opportunities available for down payment assistance that can pay for some or all of your down payment. Some of the programs are set up as grants, while others are loans you’ll have to pay back eventually.

The eligibility requirements for down payment assistance will be different depending on where you live. Some programs may have restrictions around credit score and income that you’ll have to meet to qualify. But if you are eligible, these programs can save you years of time that you would spend saving for your down payment.

How Long Will It Take Me To Save For That Down Payment?

The amount of time it will take you to save for your down payment depends on many factors, including your monthly income, monthly expenses, and the amount you hope to save. Data suggest that it would take the average renter about 6.5 years to save a 20% down payment. Keep in mind, however, that you don’t necessarily have to put down 20%.

Want an easy way to calculate how long it will take you to save? Divide the total amount you plan to save by the amount you think you can save per month. The result will be the estimated number of months it will take you to save your down payment.

Saving For A Down Payment FAQs

Do you still have questions about saving for a down payment? We’ll answer a few frequently asked questions below.

When should I start saving for my down payment?

You can start saving for your down payment as soon as you know you want to buy a home, or even before you know for sure. However, before you start saving for a down payment, make sure you’ve saved an emergency fund and have paid off any high-interest debt you have.

Should I make a large or small down payment?

Whether you should save a large or small down payment depends on several factors. The current low interest rates and rising home prices make saving a small down payment attractive. However, a larger down payment can help lower your monthly payment and help you qualify for a lower interest rate. Ultimately, only you can decide the best choice for your situation.

Where are the best places to keep my funds for a down payment?

Consider keeping your down payment savings in a high-interest savings account. Not only will it help you earn a bit of extra interest, but it will be harder to spend than money in your checking account (or a savings account attached to your checking account).

How much should I have in my savings for a down payment?

To determine how much you should save for your down payment, first determine how expensive of a home you want to purchase. Our home affordability calculator can help.

The Bottom Line: Budget Carefully And Watch Your Spending When Saving For A Down Payment

For most people, a home is the largest purchase they’ll make in their lives. And the down payment is the first large financial hurdle, often requiring borrowers to save tens of thousands of dollars. You can get a head start on your savings by learning to budget your money and paying attention to your spending habits. Additionally, be sure to look into how to qualify for down payment assistance.

Erin Gobler

Erin Gobler is a freelance personal finance expert and writer who has been publishing content online for nearly a decade. She specializes in financial topics like mortgages, investing, and credit cards. Erin's work has appeared in publications like Fox Business, NextAdvisor, Credit Karma, and more.