How to Save for a Down Payment on a House

Quick Answer

You can save money for a down payment on a house by setting a savings goal, reducing your spending, automatically saving a portion of each paycheck and increasing your income with a side gig.
Young African American couple buying a new house

When it comes to buying a home, browsing real estate listings online and imagining exactly how you'd redo that outdated kitchen are the fun parts. Saving for a down payment ... not so much. But purchasing a house is one of the most important financial moves you'll make, and the size of your down payment will have a significant effect on the size of your loan and your monthly payments.

What does it take to save for a down payment? For most people, it's a multi-year financial goal that requires a few potentially major lifestyle adjustments. The process may be challenging, but it could also push you to get creative and explore new skills you haven't had a chance to use before.

How Much Do I Need to Save for a Down Payment?

For a conventional mortgage, traditional wisdom says to save up 20% of a home's purchase price for a down payment. A down payment of that size reduces interest costs and means you won't have to pay for a mortgage insurance policy that covers the lender if you are unable to keep up with loan payments.

A down payment of that size is out of reach for many homebuyers, however—especially first-time homebuyers. An October 2021 survey by the National Association of Realtors found that 50% of homebuyers made a down payment of less than 20% of the home's purchase price. Among first-time homebuyers, 72% of homebuyers had a down payment less than 20%.

A conventional mortgage can require as little as a 3% down payment, and there are several other loan options that allow for low down payments—or even no down payment. For example, a government-backed FHA loan may allow a minimum down payment of just 3.5% if your credit score is 580 or above. Research your loan options to understand the types of loans you may qualify for and the down payment amounts they require.

9 Tips for Saving a Down Payment

Here are nine things you can do to save for a down payment so you get a home of your own more quickly than you might have thought.

1. Create a Budget

When you're trying to save enough money for a down payment, it's important to know where your money is going. Once you get a look at how much you've been spending on extras like clothing, shopping and entertainment, you may find it easier to cut back and start saving more. Creating—and sticking to—a budget is the first step. There are many budgeting methods to choose from, and the one that works best for you will be the one you're best able to stick to.

2. Decide How Much You Can Afford to Spend on a House

A common recommendation for the amount of your income you should devote to housing is 30%. This does not mean taking on a mortgage equal to a third of your income, however. That 30% should include all housing expenses, such as taxes, utilities and insurance.

Figure out how much house you can afford and commit to saving up a reasonable down payment.

3. Automate Your Savings

It can be painful to move money into your savings account when it would be more fun to spend it. That's why it's a good idea to automate your savings.

When you set up an auto-deposit into your down payment fund on a set date every month, your savings will grow without you having to think about it. You could even take it a step further and auto-deposit your money into a savings account at a separate institution from your checking account, such as an online high-yield savings account. Savings accounts limit the number of withdrawals you can make each month, so it won't be as easy to tap your savings when you're feeling spendy.

4. Cut Costs

At some point in the down payment savings process, you'll have to take a hard look at your expenses and decide to cut costs if you want to save faster.

Start with nonessential expenses, such as streaming services, restaurant meals or even your gym membership. Exercise is essential, but do you need to pay $50 a month to do it? Free alternatives include jogging outside or exercising along with instructional YouTube videos.

Think about how you can cut costs on essential items too. You may already have an affordable phone bill, but can you go lower by swapping to a prepaid or pay-as-you-go plan? When big savings are on the line, think outside the box to cut costs.

5. Get a Side Gig

Increasing your income is always an ideal move when it comes to making financial progress. If you don't expect a raise or promotion at your full-time job anytime soon, you can try making money on the side in the gig economy.

But don't go into a side hustle blindly. Selling handmade keychains on Etsy may not get quite the return you're hoping for. Look for gig work that has low overhead and a good opportunity for profit, like tutoring, freelancing or consulting. Or consider putting in a few hours a week doing food delivery or driving for ride-hailing services.

6. Buy Used and Save the Difference

You may be surprised by how much you can save when you buy clothes, shoes, furniture, appliances, vehicles and other goods used instead of new. It's important to be strategic with your buying practices, though. You don't want to spend money on items that will need to be fixed or replaced quickly.

When saving for a down payment, buying second hand is an effective strategy for both wants and needs. It can satisfy cravings for new things like outfits, which can be found for pennies on the dollar. And it can also save you money on needs, such as a replacement phone in the form of a less expensive certified refurbished model.

7. Cook More

It may seem cliche, but there's a reason personal finance experts suggest you cook more at home when you're trying to save money: It works.

In 2020, Americans spent about 8.6% of their disposable income on food on average. Of this, 3.6% percent was on food outside of the home while 5% was on home-cooked food. Restaurant dining tends to be much more expensive than home cooking, so shifting some of the meals eaten out to home-cooked could save you even more money for your down payment.

8. Become a Champion Reseller

When you're trying to save up a down payment, some of the property you already have could help get you there. Look at the items you no longer use or need and consider reselling them on online marketplaces, at local pawn or consignment shops or through a yard sale.

Include things like furniture you would otherwise donate or clothes in good condition. Other savvy shoppers will be happy to take these items off your hands, putting money right back into your pocket.

9. Move Back Home

Once upon a time, kids could move out from their parents' home after high school or college and never look back. Today, however, many young people are realizing that living at home for a while longer might be the only way they can afford to save up a down payment for a home of their own.

Even if you are contributing to the household through shared rent, utilities or groceries, you can still save on the costs associated with renting such as first, last and security deposits. Saving money by living with family can accelerate your down payment savings by years.

One Step at a Time

If saving for a down payment seems like an impossible task, it may be helpful to ask yourself, "How does one run a marathon?" The answer is one step at a time. That's exactly how you'll save for a down payment: one dollar at a time.

And while you're saving up all of those dollars for your home purchase, make sure you're preparing your credit profile to get approved for a mortgage. Get your free credit report and credit score from Experian, improve your credit if necessary, and be ready to go when you reach your savings goal.