couple looking at a house after saving for a down payment
Budgeting & Saving

One of the biggest financial hurdles to buying a home is saving for the down payment. The homebuyer pays this lump sum upfront, and it’s typically expressed as a percentage of the purchase price. For example, if a home costs $250,000, and your down payment is 5%, you’ll need to come up with $12,500. Many people start thinking years ahead about how to save for a down payment.

A traditional down payment amount is 20%. The size of your down payment, and the time it takes you to save, may depend on several factors.

Saving for a down payment can be difficult, especially if you don’t have a lot of money to start with. But there are ways to turn your dream home into reality a little faster and easier. In this article, we’ll cover 6 methods for saving money toward a down payment.

While you’re saving for that down payment, it’s important to build up your credit score. Best Egg Financial Health will monitor your credit report, alerting you to any changes or updates you need to know about. Good or bad, whatever comes down the pipeline you won’t ever be caught by surprise.

What are the 6 tips for saving for a down payment?


Reaching a savings goal isn’t just about smart spending, though that’s a big part of it. There are two main steps to building a budget: 1) finding your target number, and 2) building a payment plan.

The amount you must save depends on where you’re trying to live and what kind of home you’re buying. Look at average home prices in your target area to get an estimate of how much your home will cost. And don’t forget that closing costs often add another 3-6% to the total purchase price of the house.

Making a 20% down payment will save you from having to pay private mortgage insurance, or PMI, a monthly payment that protects the lender if you default. Many lenders won’t expect that much, however. Depending on your credit score and what type of loan you’re considering, you could put down less and borrow more. It doesn’t look good to have outstanding high-interest debts, so try to take care of those before applying for your loan.

Here are the most common loan options:

  • Conventional loans. Fixed-rate, conventional loans are the standard for mortgages. With good credit and low debt, you may qualify for a down payment as low as 3%. However, you would most likely be required to pay PMI until you reach 20% equity in the home.
  • FHA loans. The Federal Housing Authority offers loans with down payments varying by credit score, the lowest being a 3.5% down payment for a score of 580 or more. From 500-579, they offer 10% down payment options.
  • VA loans. Limited to qualifying active servicemembers, veterans, and spouses, the U.S. Department of Veterans Affairs backs these loans. With a VA loan, the down payment is waived completely.
  • USDA loans. These loans also don’t require a down payment, though there is an income limit. They’re also restricted to rural and suburban areas.
  • Jumbo loans. These loans are bigger than the limits for conventional loans. In these cases, down payments tend to start around 10%, but lenders might require considerably more.

Downsize your spending

Once you have a number in mind, start saving toward your goal. Figure out where you’re spending money. Look at your bank and credit statements. Factor in monthly expenses like rent and student loan payments, see where the wiggle room is, and downsize your spending.

Small things may not seem impactful but cutting back in many areas at once adds up quickly to save money. Here are some spending areas you can minimize:

  • Reduce spending on clothes and shopping.
  • Cut out fast food and take-out meals.
  • Drop a subscription or two to streaming services.
  • Start biking to save on gas.
  • Hold off on that dream Caribbean vacation.
  • Cancel gym memberships and magazine subscriptions you don’t use fully.

Some bigger-impact saving tips will take more time but could yield good results:

  • Buy a less expensive car.
  • Move to a more affordable neighborhood or apartment.
  • Get a roommate to split costs.

The best ideas will come from you. Look at how you spend money. Perhaps you don’t ever eat out, but you spend $40 a week on coffee. Find creative solutions so that you can redirect whatever disposable income you can toward your future home. If personal finance is overwhelming, try using a budgeting app to keep track of spending, or talk with a financial advisor.

Automate your savings

One of the easiest ways to save is to make it automatic. If you work a 9-to-5 job, ask your employer to deposit a portion of your paycheck directly into a separate account. If that doesn’t work for you, you can set up automatic transfers from your checking to a savings account. Just make sure you set the recurring transfer on your payday because overdraft fees seriously dent down payment savings.

By making the money less accessible, you can “set it and forget it” so you don’t accidentally overspend.

If you want to save money faster, find ways to make more money. Ask for a raise, or shop around for better-paying jobs. You can use the automated savings method for side hustles, too. Whether it’s a second job or a bonus from work, put that extra income exclusively toward your home-buying goal.

Find the best place for your savings

The time horizon for your down payment will impact where you should put your savings. If you plan to make a payment on a house 10 years from now, maybe it’s worthwhile to invest. Most people want to buy much sooner than that, and the stock market is too volatile for short-term investing.

Regardless of how long it’ll take to purchase a home, your money can do more than sit in a checking account. That said, you don’t want to make your payment fund too inaccessible. The aim is to maximize returns while keeping your assets relatively liquid.

  • High-yield savings accounts. These provide total liquidity, FDIC insurance, and interest of more than 0.01%. Interest rates are currently rather low, but it’s a decent option for short-term or mid-term saving.
  • Money market accounts. You also may not make a ton of interest in money markets, but you won’t lose anything. These are insured and offered by banks and credit unions, and you can shop around to find a good interest rate.
  • Certificates of deposit. CDs offer higher interest rates than other options, but the money is not accessible until the CD matures. Removing funds early results in a withdrawal penalty, which you’ll want to avoid.

The biggest service these accounts provide is making your money relatively accessible to you, even if interest rates aren’t ideal.

Explore special programs for homebuyers

For first-time home buyers, you may qualify for down payment assistance programs and tax breaks that your state may offer. And be sure to ask your bank what they have available. Some have matching programs you can take advantage of.

Use credit cards and tech tools

A common and easy way to save some money is to use a cash-back credit card. Make everyday purchases with the cash-back card and put whatever extra money you earn toward your down payment fund. Of course, you’ll need to stay on top of monthly payments, so you don’t get burned by high-interest debt.

Check out different savings apps and cards that allow users to round up to the nearest dollar on their purchases. The extra cash is then sent to your linked savings account—way more convenient than a piggy bank full of pocket coins.

How to save for a down payment

Hitting your budget goal can seem daunting, or even impossible. Saving enough money for a down payment goal is especially challenging. The first step toward your home purchase is to break the process down into smaller, realistic steps. Then you can look at the many tools available to help you along the way.


This article is for educational purposes only and is not intended to provide financial, tax or legal advice. You should consult a professional for specific advice. Best Egg is not responsible for the information contained in third-party sites cited or hyperlinked in this article. Best Egg is not responsible for, and does not provide or endorse third party products, services or other third-party content.

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