How to Save for a Down Payment

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The biggest investment that the average person will make is their home. With homeownership comes a monthly mortgage payment, mortgage insurance, moving expenses, repairs and extra spending you were not ready for, and other costs.

If you are saving for a house in the future, keep in mind that you need to save more than just the home price. Your savings are also going to need to include a good down payment, closing costs, and additional money for those sneaky things that creep up like monsters on a dark night.

You should also factor in the cost of private mortgage insurance which may be a requirement for certain types of home loans like an FHA loan for first-time home buyers.

How can I save money for a down payment fast?

Saving money for anything can be tricky, especially for people who have left steady jobs for the gig economy. First-time homebuyers should take advantage of any type of assistance program including those that have education requirements.

Before you can figure out how fast you can save the money, you might need to know a rough estimate of how much of a down payment you are going to need plus how much house you can realistically afford.

You can open separate savings accounts for your possible down payment and housing costs and allow it to build interest. To add more money to that account as quickly as possible:

  1. Start with the right savings account. A high-yield savings account will give you more interest on your holdings right off the bat.
  2. Set a realistic budget. Don’t get too draconian or you will likely rebel against your own goals and spend all of the money on a limited edition, collectible figurine that mocks you every time you have to pay the rent.
  3. Eliminate all redundant or unnecessary services. If you have not used a streaming service in more than 2 months, would you really miss it if you canceled? Consolidate services and ask for bundled savings for anything you cannot do without. Truebill, a free app, can help you identify monthly subscriptions you’re not using and automatically cancel them for you.
  4. Set a monthly or weekly savings goal and stick to them.
  5. Put all of your spare change into a jar and add that to the savings account.

Setting up a separate account for your savings (in a different bank than your regular checking account) may help you save more money. It curbs the temptation to spend money frivolously since there’s more effort to get those funds.

If you have direct deposit set up, you can have your payroll or HR pay a portion of your check to that separate savings account.

How much should I save as a down payment?

The amount that you will need to keep as your down payment savings will vary by a lot of factors.

  • The home’s purchase price. Most down payments are determined by a percentage of this amount.
  • The type of mortgage options that you will qualify for. There are several that will not require a down payment at all and others that require only a very small one. With an FHA loan, you need to come up with only 3.5% (of the total mortgage amount) for your down payment. For a $250K house, that would be a down payment of $8,750.
  • Your credit score. The better your credit score, the lower the required down payment amount might be.
  • What you would like your future monthly payment amount to be. For some people, having a bigger down payment upfront will help them to live more comfortably in the future because it will dramatically lower their monthly payments.

The average down payment amount is around 6-7%. Some people do pay up to 20%.

Down payment assistance programs can help and may be available on certain types of home loans like VA loans and USDA loans. You must meet certain criteria for both the loans and the assistance programs. They are usually only open for first-time home buyers.

How long does it take to save up for a down payment?

Most people can get there within 6 to 24 months. How fast you can save up for your down payment depends on how much you need to save and how disciplined you are at saving.

You may need to take on a part-time job or side hustle and set aside funds from your tax returns and other cash injections (bonuses at work, holiday cash).

Talk to a financial advisor or mortgage broker about the best loan options for you. You can ask for a free consult to get an idea about how much you’ll need to save up and if your credit scores need any work (cleanup) first.

What are Some Creative Ways to Save for a Down Payment?

Up until now, the advice has been pretty standard fare but there are some creative and kind of fun ways to get your down payment fund looking beefier than a bodybuilder at a steroid convention.

These creative tips can help you earn the money you need now and can help you stay happy in your future home.

Swagbucks

If you have never heard of Swagbucks before that’s okay. It’s a great website with plenty of ways to make and to save money. Here’s how:

  • You sign up for a free account by clicking on the link above. It’s super simple and should take only a few minutes. You even earn bonus points called Swagbucks just for doing that.
  • To earn money: take surveys, answer daily poll questions, play games, explore new services and brands. Additional offers can be sent to you by email, by direct message on the Swagbucks website, or through text message.
  • To save money: upload receipts and get rewards for the things you already buy, use discount codes and coupons that give you things like free shipping, special offers, and cashback.
  • To make it all easier: install the Swagbutton as an extension in your computer’s browser and discounts, coupon codes, and possible cashback information will display at any of the thousands of merchants that offer it. Discounts will be automatically applied if you use the button.

Inbox Dollars

Like Swagbucks above, Inbox Dollars offers several ways to earn money and to save it as well.

  • Start earning money from the minute you make your account with the $5 welcome bonus. From there, earn money completing your profile and initial surveys.
  • Keep the earnings coming by taking daily surveys, playing games, and joining in special events.
  • Save more money by using discounts, coupons, and special offers.

Upromise

If you have ever looked into saving for a college education, you have probably heard of Upromise. But, did you know that you can use those savings toward a home purchase? You can use the savings in any way that you want for your near future and for your “future future”.

  • Start your account, link your existing 529 plan or eligible savings account and get $30 as a welcome bonus.
  • Earn cash back effortlessly for your everyday purchases. Shop online (over 5,000 eligible stores) and earn 1% to 20% cash back on your purchase. Retailers include Home Depot, Lowe’s, Best Buy, Macy’s, GAP, Old Navy, and plenty more. Cash back savings you earn gets automatically transferred into your linked savings each month.
  • Cash back for dining out. There are over 30,000 participating restaurants. Restaurants will vary by zip code. Plenty of local eateries and regional and national chains are on the list. Dine out, earn 1% to 15% cash back or more.

Get a Side Hustle

Generally speaking, anything you do outside of your regular “job” can be considered a side hustle.

  • Drive for Uber or Lyft.
  • Offer freelance services on Fiverr.
  • Tutor students in any topic you feel comfortable teaching.
  • Deliver food with your bike or car on a service like UberEats, Postmates, or DoorDash. Often, you can score a lucrative signup bonus for signing up to deliver.
  • Sell your handmade items on Etsy or Threadless.
  • Walk dogs on Wag or Roverr.
  • Take online surveys for gift cards, PayPal, or cash (check in the mail).
  • Flip thrift store finds, like home decor items or furniture. Re-sell these goods on Facebook Marketplace, Buy Sell groups, and Craig’s List.
  • Clean out your closets. Sell old toys and clothing. Baby and kids clothing does especially well.

Double-Duty Tips

Not only can you save money for a bigger down payment plus set aside some savings for your new home, but you can also save money on moving expenses, save time and effort, and maybe even help save the planet just a little bit.

  • Have a garage sale. Now is the time to sell old baby clothes, unused sports gear, and the possibly haunted piano that you truly do not need to lug to a new house.
  • Go through your clothing and sell the designer label goods on Poshmark.
  • Have old jewelry appraised. Anything that you will not wear can be sold, remade, or traded in for a new item.
  • If you have found the new neighborhood or even the house you will be buying, determine if you need the second car, the bike, or the huge truck. If you will be using mostly public transportation, consider selling your vehicle and using that money toward your down payment fund

Final Thoughts on How to Save for a Down Payment

Most mortgage lenders like to see home buyers come in with tens of thousands of dollars ready to go for a down payment. A big down payment is a great way to signal that you are not only eager to buy the house of your dreams but that you understand the process and have enough money to make the payment for a house.

The downside is that you are also going to have to start saving again once you are in your home so that you have a cushion in case of a big-ticket repair and for your retirement savings as well.

Make sure that you are comparing lenders and the loan products they have to offer so that you do not get stuck with high-interest debt or balloon payments that seem to come out of nowhere. Compare the interest rates on a conventional loan against other loans and see which works best for your situation.

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