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Whether you’re looking to buy your first home or your fifth, putting money down upfront will reduce your monthly mortgage payment, total interest charges, and perhaps even the loan’s interest rate.
I know it’s definitely not an easy task, saving potentially tens of thousands of dollars in order to make a down payment. There are ways to reach your goal more easily, but it’ll probably require some sacrifices along the way.
If you currently own a home, you may have an easier time because you can use the equity you’ve gained in the property. But if you’re a first-time homebuyer, you’ll need to come up with the cash in another way. Here are some money moves you can make to set more aside for your home purchase.
How to set a savings goal for your down payment
First of all, it’s important to know how much you’ll need for a down payment. This depends on the type of home you’re looking for, where you live, and the type of home loan you get.
Get prequalified
You can talk to a lender (or multiple lenders) to find out your prequalification amount. This isn’t an official loan, but a number based on your income and creditworthiness.
This prequalification number can tell you approximately how much a bank might be willing to lend you for a home. You should also consider buying a home that’s somewhat lower in price than your total prequalification, since other expenses can add up and make it harder to afford that home down the line.
Consider types of home loans
Once you have your prequalification amount, that can help you figure out the type of mortgage best suited to you. Different types of home loans come with different down payment requirements, and some loans let you buy a house with no money down.
FHA loan: 3.5%
VA loan: 0%
USDA loan: 0%
Conventional loan: 3%-20%
If you’re buying a $250,000 home and need a FHA loan down payment of 3.5% or more, you need at least $8,750 for your down payment, plus more for closing costs.
But for the same-priced home with a conventional loan, you might be able to qualify for $7,500 down payment, or 3% of the purchase price. That may go up as high as $50,000 if you want to avoid private mortgage insurance by putting at least 20% down.
You can use the prequalified amount and play with the numbers a bit to figure out what type of down payment you might be able to afford (and this can help you decide on the type of mortgage you need).
Research down payment assistance programs
If you’re a first-time homebuyer and your income is relatively low, you may be able to get help with your down payment through an assistance program. These programs are offered through nonprofit organizations and state or local government agencies.
Depending on the program, the assistance may come in the form of a grant — which you don’t have to repay — or a loan. Here are a few ways that loan could be structured:
- You make payments in addition to your mortgage loan, just like a traditional loan.
- You don’t have to repay the loan until you move, sell, or refinance your mortgage.
- The loan proceeds are forgiven over a set number of years, as long as you don’t move, sell, or refinance.
To qualify for one of these programs, you must typically be a first-time homebuyer with low-to-moderate income. You’ll also likely need to use the home as your primary residence — investment properties usually don’t qualify — and your property must meet certain eligibility requirements as well.
Run an internet search for down payment assistance programs in your area to get an idea of what’s available.
Tips to save for your down payment
Once you’ve determined your savings goal, you may be either excited that you already have enough stashed away, or wondering how on earth you’ll save that much. I get it — even on the low end of maybe several thousand dollars, saving a big chunk like that can seem daunting. Fortunately, there are some strategies that can help you reach your goal.
Slash your bills
This might be an obvious step to anyone wishing to save money, but I’ll say it anyway: try to cut your bills while saving your down payment. Even if you already know how to budget, it’s worthwhile to take another look at your spending and figure out which bills you could cut out or decrease.
Do you have subscriptions you’re not using? (Who doesn’t?) Figure out if you’re paying for gym fees or streaming services or other ongoing bills that you don’t need. Recurring charges could make a big dent in your spending, so cutting them out may allow you to redirect some cash into your down payment account.
If you’re not sure where to start, an app like Rocket Money can help. The service will cancel subscriptions you no longer use and can even help you negotiate lower rates on cable, phone, and internet bills.
You can also find other ways to decrease spending. Look at your current lifestyle and try to downsize it in a few areas. You might find that you can cut down on luxuries like eating out or entertainment. You could put off major purchases for a year or two while saving for your home.
This doesn’t have to be a totally miserable time of your life — you may be able to lower your bills by simply cutting back, not cutting out. What I’ve done is keep one or two streaming subscriptions, but cancel the rest for a few months or a year. Maybe you dine out three times a week and could cut back to once or twice a month.
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Rocket Money Benefits
- Helps to find and cancel subscriptions
- Slash your monthly phone, cable, and internet bills
- Save an average of up to $720 a year
Pay down your high-interest debt
Paying off high-interest debt like credit cards is another way to free up some cash flow in your budget and improve your credit. Raising your credit score to move you from “Fair” to “Good” or higher on the FICO scale will likely also save you money on mortgage interest rates when you buy a house.
Getting rid of some or all of that debt can also help you after you buy a home, since that will help you manage your new monthly budget.
You can try to pay off debt by checking out the best balance transfer cards, which could help you pay down your balances interest-free. These cards typically give you an introductory 0% APR promotion for a period — sometimes 18 months or longer — during which you can transfer and pay off what you owe. But you’ll need good credit to qualify for those offers.
If you don’t qualify for a new credit card or want to avoid taking on new credit shortly before applying for a loan, I like either the good old debt snowball or debt avalanche method to accomplish your goal.
Read our Citi Double Cash® Card review.
Increase your income
I know, I know. Increasing your income isn’t necessarily an easy path. But if you’re serious about saving a down payment, cutting back on your bills likely won’t cut it.
You can look into overtime at your job, take on a second part-time job, or look into flexible side hustles. There are plenty of jobs in the gig economy such as delivering for DoorDash or Uber Eats, and these are helpful because you can squeeze in a shift during free windows of an hour or two during your normal day.
Another option is to look into work-from-home side gigs. Plenty of people are making extra or even full-time income by working online.
If you are able to even work an additional five to ten hours per week, you could significantly bump up your savings rate while you’re building up your down payment fund.
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DoorDash Benefits
- Be your own boss and set your own hours
- Keep 100% of the delivery fee plus any tips or boosts
- Just pick up the food, drop it off and get paid!
Sell your stuff
Raise your hand if you currently have some belongings taking up space in your car or apartment or storage unit that you’ll never use again. I know I’ve got some stuff that’s perfectly useful, but not to me. Maybe you’re in the same boat and could make some extra money for your down payment by selling your stuff.
Use your best judgment when deciding what to sell and what to keep. Obviously, the better shape an item is in, the more money you’ll probably be able to get from a resale. You may want to sell furniture since that could fetch a higher price in the used marketplace.
This will probably not provide your entire down payment, of course. But if you could unload some items that are taking up space and add a few hundred (or even thousands) of dollars to your down payment, this could be a worthy use of your time. Plus, as a bonus, you’ll have less stuff to pile into the moving truck when that day comes.
Automate your savings
One of the best things you can do is to treat your savings like another monthly bill. Instead of relying on whatever is left at the end of the month, set up automatic transfers to your savings account. I rely on automatic savings because it lets me make a saving decision once and then it continues month after month, with no added effort from me.
You can also potentially enlist the help of an app like Oportun (formerly Digit). The service connects to your bank accounts and reviews your income and spending. Based on what it finds, it will automatically transfer money from your checking account to an account with Digit, which makes it a little easier to rack up savings if you’re having a hard time doing so on your own.
Bank your windfalls
Most people can’t count on a large inheritance, but if any windfalls occur, you can put the money toward a down payment. During this saving period, it’s wise to earmark every instance of unexpected or “found” money for your goal of buying a house.
For example, if you receive a tax refund or earn performance bonuses at work, consider adding that cash to your down payment savings instead of spending it. And perhaps you’ll have an actual inheritance to bank as well. I’ve had elderly relatives who left my family a portion of their inheritance and I would either use that money to pay down debt or put toward a large goal like a down payment.
Ask family for assistance
Many of the best mortgage lenders allow you to use money gifted or loaned from relatives to fund your down payment. Keep in mind that if an individual gifts you more than $15,000, they’ll need to disclose it to the IRS, and it could impact them through the tax code’s gift tax.
Also, you may need to disclose the source of your funds to the lender, and if it’s a loan instead of a gift, you’ll want to spell out the repayment terms before you receive the money.
FAQs
Where should I save my down payment?
I’d make three primary goals with your down payment savings account: the money is accessible when you need it, it won’t go down in value (FDIC-insured), and it earns more money. Don’t put money into an IRA or other account you can’t easily access without penalties or where it could lose value. A high-yield savings account is an excellent option that protects your money while earning an APY on your savings, and you can withdraw the funds whenever you need the down payment.
How much do I need for a down payment?
The National Association of Realtors found that between July of 2022 and June of 2023, the typical down payment for first-time homebuyers was 8%, while for repeat buyers it was 19%. The amount can range from $0 for certain government loans to 20% if you want to avoid private mortgage insurance, so your needs depend on the type of mortgage you seek.
Bottom line
Coming up with a down payment for a house might seem like a huge obstacle, but there are several options out there that can help you achieve your savings goals. Start by figuring out exactly how much money you’ll need, and then take on a savings strategy (or multiple strategies) that work best for you. There are plenty of clever ways to earn money for a down payment.