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How to Save for a Home Down Payment

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How to Save for a Home Down Payment

One in four first-time homebuyers says that saving for a home down payment is the most difficult part of the homebuying process. For individuals who haven't just sold their older home, the down payment may seem impossible.

No matter how much you save, it can feel like you'll never get the 20% down payment that so many mortgage companies look for.

If you're trying to save for a down payment on a house, keep reading. We can help you with home down payment savings.

How Much to Save for a Home Down Payment

The golden rule for down payments is 20%. But this may not be true for everyone, especially if you're saving for a first-time home buyer down payment.

Whether you're a first-time home buyer or not, you'll have to pay private mortgage insurance (PMI) if you pay any less than 20% of the home's value.

The amount that you pay in PMI will be an extra cost on top of your monthly mortgage payment. Depending on your situation, this extra payment may be better than waiting for a larger down payment.

For some people, paying a mortgage with PMI may be cheaper than paying rent. In this case, you may want to opt for a smaller down payment.

However, your down payment does have to meet some requirements:

  • Fixed-rate conventional loans allow borrowers to put as little as 3% down
  • Loans from the Federal Housing Administration (FHA) allow borrowers to put as little as 3.5% down
  • Loans from the Veterans' Administration (VA) allow borrowers to put as little as 0% down

If you want to figure out how your mortgage payment changes with different down payment amounts, use a mortgage calculator. Even if you don't know your exact interest rate or mortgage amount, a calculator can help you determine an estimated amount of money that you'll need for your new home.

And, it can help you determine the percentage that you should aim for while you're saving.

Before you know it, you'll be buying your new home.

How to Save for a Home Down Payment

Saving for a down payment is similar to saving for anything else: a vacation, a car, a new pair of shoes, etc. However, a down payment is a high-stakes investment.

Depending on how soon you're looking to buy a new home, you may need to save several thousands of dollars quickly. You may need to take a long time to save up your down payment, even if you're selling your old home.

As you're planning your next home purchase, you should follow a few simple steps to save for your down payment.

1. Plan Before You Start

Planning is the best way to control your down payment savings. You need to know what your goal is and how you're going to get there. Otherwise, you're not going to get very far with your savings.

First, determine how much you want to save. Think about your home buying range and determine what percentage of that you want to save. This number will become your down payment goal.

If you're nervous about meeting your goal, you should overshoot the amount that you need. For example, you should shoot for saving 15% even if you only think that you'll be able to save 10%. Having a larger goal may be more motivational as you're saving.

This extra amount will also help your account for any closing costs, fees, or other additional payments you need to consider. These can make up between 3% and 6% of a home's value, so you should add this to your goal amount.

With this amount in mind, you should consider how much time you have to save. Then, divide the amount that you'll need to save each month to meet your goal amount. For added savings, put these monthly payments into a high-yield savings account.

2. Increase Your Income

You may think that you're stuck with your current salary, but that's not true. A lot of people start side hustles while saving for something, especially new homes.

Get creative and think about something you can do to increase your income. Some people try for better-paying jobs, promotions, or other ways of increasing incoming money.

Others opt for freelancing, social media campaigns, part-time work, or similar positions if they can't make more money with their current positions.

Brainstorm about ways you can bring in money. A simple Google search can reveal hundreds of money-making ideas.

3. Cut Your Spending

Cutting extra spending can give you a boost towards your down payment savings, too. It may not be your first choice when it comes to saving up, but it's a great way to get closer to your savings goal. 

Here are some things you may want to think about cutting:

  • Fewer take-out meals
  • Limited entertainment-related purchases
  • Fewer travel experiences
  • Reduced clothing purchases
  • Relocation to a cheaper apartment/housing arrangement
  • Consider getting a roommate to lower housing costs
  • Bike more to save on gas money

There are plenty of ways to cut down on your spending. Think about purchases that you don't need to make. Stick to the needs/basics as much as you can.

4. Pay Off Debt

High-interest debt could be keeping you from saving enough money. From loans to credit cards, you may be racking up a greater balance than you realize.

You should pay attention to how much interest you're accruing on your credit cards each month. This will tell you how much money you're losing because of your high-interest credit lines.

Paying off your debt before you start saving can help you save more money in the long run. If your money is going towards current debts, it's harder to save.

Getting rid of your debt also increases your credit score, which makes it easier to get a better mortgage loan. With a higher credit score, you'll be eligible for a lower interest rate, which will yield a lower monthly payment.

5. Automate Your Savings

If you're having trouble saving, automation may be the way to go. 

With an automated savings system, you can determine the amount that you want to save and have that amount go into your account automatically. You could set this to happen once a week, once a month, or at some other interval.

Most bank accounts allow users to do this online through their savings accounts.

Automated savings is the easiest way for you to continuously save. You can authorize your bank to send a certain amount of money to your high-yield savings account that's holding your down payment.

It leaves no room for excuses about not having the money or time to save.

Having a separate savings account for your down payment also makes it easier to leave the money alone. If you can't use the money via a debit card, then you're less likely to access it.

However, you should be careful if you're living paycheck-to-paycheck or otherwise having problems with low finances. You could incur overdraft fees or cancellation consequences if you don't have enough money to transfer into your savings account.

6. Ask for Help

More and more families are getting monetary help from online sources or older family generations. The ability to save for a down payment isn't as easy as it used to be.

And, it's likely that older families have the savings necessary to pay a substantial down payment. 

You can crowdsource money through a multitude of fundraising apps. Or, you can ask family members for help with your funds.

You could ask for monetary gifts instead of physical ones or offer services in exchange for cash.

Make sure to log each gift that you receive towards your down payment. Your mortgage company and real estate agent may need this information in accordance with the rules for giving.

You shouldn't feel guilty for asking for financial assistance. Most families these days are struggling with meeting the expectations of a mortgage down payment. Even if you're living comfortably, these thousands of dollars can become too much to handle.

7. Consider Special Programs

If you're a first-time home buyer, there are several home buyer programs that you should consider before applying for your first mortgage loan. With federal and local options for mortgage loan programs, there are plenty of opportunities.

Different organizations have developed these programs to help home buyers, just like you get the down payment they need to buy a home. Offering lower down payments makes it exponentially easier for home buyers to get the mortgage loan they want.

Without these assistance programs, there may not be as many consumers able to buy homes. This would cause a catastrophe within the housing market.

Gather Your Down Payment and Buy the Home of Your Dreams

It's time to put all of these tips to work and start saving for your home down payment. Whether this is your first home or your tenth, it may be difficult to pull together the money you need.


Once you bring your down payment on a house together, you can start looking for your next home using our interactive 3D virtual tours. At Hommati, you can also find real estate agents and search all of our available homes.