How to Save for a Down Payment

Figure out how much down payment you'll need, use money-saving tips and keep savings in the right type of account.
Kate Wood
By Kate Wood 
Updated
Edited by Alice Holbrook Reviewed by Michelle Blackford

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Saving for a down payment can be the biggest obstacle that first-time home buyers have to overcome. But breaking the process down into smaller, actionable money moves might make it less daunting. While it will likely take a while to save up a down payment, with a couple of shortcuts and a pointer or two, you might reach your goal sooner than expected. Here are five things you can do to get started.

1. Determine how much to save for a down payment

The down payment is the upfront cash you pay to get a home loan, and it's expressed as a percentage of the home price. It's a common misconception that you need to make a 20% down payment on a mortgage. While putting 20% down will allow you to avoid paying for private mortgage insurance, lenders seldom ask for that large a payment.

If you've got a solid credit score and manageable debts, a lender may well allow you to borrow more and put down less. Additionally, different types of home loans have different down payment requirements.

  • Conventional loans. Most mortgages are conventional loans, which adhere to conforming loan standards set by Freddie Mac and Fannie Mae. These standards can make qualifying for a conventional mortgage harder. However, with solid financials, you can make a down payment as low as 3%.

  • FHA loans. FHA loans are backed by the Federal Housing Administration and require as little as 3.5% down. Required down payment amounts vary by credit score, however.

  • VA loans. Backed by the U.S. Department of Veterans Affairs, VA loans let borrowers skip the down payment. VA loans are limited to current and former U.S. service members and qualifying spouses.

  • USDA loans. USDA loans, which are backed by the U.S. Department of Agriculture, usually do not require a down payment. These loans are for borrowers in rural and suburban areas and can have income limits.

  • Jumbo loans. Mortgages that go beyond conforming loan limits are called jumbo loans. Because these mortgages can't be insured or backed the way other loans can, lenders often require higher down payments, starting at 10%.

🤓Nerdy Tip

When you're figuring out how much to save for a down payment, you'll also want to account for the other costs of buying a home. These can include closing costs (usually 2%-5% of the purchase price), moving costs and an emergency fund for home repairs.

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2. Use money tips to accelerate your savings

Whatever the dollar amount, it can help to mount a multi-pronged attack. Making a few smart money moves can help you set aside a down payment faster:

  • Automate saving. Set up automatic transfers from your checking to your savings account. That helps make the process seamless — and maybe a little less painful. Your employer also might give you the option to deposit some of your paycheck directly into your savings account.

  • Save extra money. Whether you get a raise or bonus, or if we're simply talking about your tax refund, add the dough to your down payment savings rather than spending it. Having a little windfall in your savings might motivate you to grow the balance even bigger.

  • Stash spare change. No, not in a piggy bank (though you can do that too, if you want). A variety of banks and savings apps allow users to round up card purchases to the nearest dollar and put the change in a linked savings account.

  • Use a cash-back credit card. You guessed it — put that cash back toward your down payment fund. To maximize your cash back, put as many purchases as possible on your cash-back credit card, making sure to pay it off each month so that interest charges don't decimate your earnings.

  • Drive smarter. Paid off your car? Resist the urge to buy a new ride and save the monthly payment. Still paying for your wheels? Consider refinancing your auto loan to lower your payments. If you haven't changed your car insurance in a while, compare rates to see if you could get a better deal (and put the difference toward your savings).

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