5 Tips for Saving for a Down Payment on a Home

Simple ways you can save for a home down payment

Lately, it seems like every time I get together with friends the topic of buying a home comes up. This makes sense since a majority of my friends are either engaged, newlyweds, or new parents…all major lifestyle changes. Almost every conversation someone says

“I can’t afford the down payment of purchasing a home.”

It makes me wonder, how many people are deterred because they honestly don’t believe they can afford the down payment? A common misconception seems to be the belief that one can only buy a home if they have 20% of the purchase prices which just isn’t the case. Traditionally, home buyers need a down payment between 10 percent and 20 percent of the purchase price. During the housing bubble that figure dropped sharply, even down to zero. But loans that didn’t require a down payment are now seen as one of the culprits of the mortgage crisis, because they allowed people to buy homes they couldn’t afford. These days, it’s rare to get a mortgage without contributing some of your own cash. And if you’re trying to buy a home that was foreclosed or through a short sale — where the purchase price is below the amount owed on the house — a larger down payment can speed up the process. Regardless of the percentage that one is considering putting down here are some tips to save up for the down payment.

1. Decide How Much House You Can Afford The first step is to set your savings goal. Research home prices and determine how much you can afford. Calculators can be found on most bank websites and on the FHA site at www.fha.gov. As of Feb 2013, the median price of existing homes in the U.S. is $173,600, according to the National Association of Realtors. A 5 percent down payment for a home that price would be $8,680. A 20 percent down payment would be $34,720. If you’re able to save 20 percent, lenders will not require you to purchase Private Mortgage Insurance, which will reduce your monthly expenses.

2. Set Up a Savings Plan You’ll also need to create a savings plan and set a deadline for reaching your goal. One method is to find the difference between your current housing costs and your projected monthly mortgage payment, and put that much away each month. This system has the advantage of allowing you to decide if you really earn enough to afford the home you want. “In some cases, if a homeowner is paying a low rent, doubling that payment can be quite a shock, even if the bank says, ‘You meet our guidelines,'” said Mike Hines, homeownership services director for the Sacramento, Calif., office of the NeighborWorks America. Open a separate savings account for your down payment to minimize the temptation to tap the money for other needs. Also setting up automatic transfers to your new account will lessen the chance you’ll spend the money elsewhere.

3. Pare Back Expenses and Raise Cash Review your spending habits and determine where you can find extra cash. If you’re determined to buy a house as soon as possible, try living like a tightwad. Start by putting away the credit cards. Then cut out cable TV, switch to a less expensive cell phone plan and reexamine other aspects of your spending until you’ve pared back to just necessities. Use coupons at the grocery store and stay away from the mall. Hold a garage sale or sell unused items online. There are dozens of books and blogs you can turn to for frugal living advice that can help accelerate your savings.

4. Borrow From Your 401(k) Most 401(k) plans allow participants to borrow from their accounts to finance a downpayment. Some advantages to these loans include an easier acceptance process, generally lower interest rates than bank loans and the fact that you’ll be paying the interest to yourself. Although they don’t count toward your overall borrowing on your credit score, a mortgage lender may note such a loan as part of your overall debt load. A key drawback is that the money will not be growing for your retirement, and if you leave or lose your job, you’ll have to pay the entire amount back or face stiff penalties plus taxes.

5. Find Out if You Qualify for Assistance If you’re hoping to take advantage of the down market but haven’t got that much saved, you may be able to find help through various programs. There are FHA-backed programs in every state. Most are aimed at low- and moderate-income, first-time homebuyers and usually require recipients to make some contribution. Visit the agency’s website at www.fha.gov to learn if you qualify for a program in your area. The Veterans Administration and the Agriculture Department are among other government agencies that offer down payment assistance. Last, but certainly not least, stay focused.

Once you really commit to this goal stay with it. The second you are handed the new keys to your home it will all be worth it! Read more of our first time home buying tips here.

Image via picz.in

Lindsay is the the Director of Media Engagement for Coldwell Banker Real Estate and manages the brand’s media and social media department. She is also a licensed real estate professional. In 2017 & 2018, she was named a top 20 social influencer in the real estate industry in the annual Swanepoel 200 power rankings.

Lindsay lives in Livingston, NJ with her college sweetheart and now husband Joe and rwelcomed another Joe into her life as she became a mom in June 2016.

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  1. We Believe in First Time Home Buyers | Coldwell Banker Blue Matter
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    […] of a number of posts we’ve already written. One of our most popular, and useful ones, is on 5 Tips for Saving for a Down Payment to help first time home buyers prepare financially for the big […]

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  3. Steve
    April 23, 2014

    I thought it was a good article, until I got to #4. Once I saw that advice I couldn’t take this serious anymore.

    • Dumbest_advice_ever
      June 5, 2014

      I know right get in debt with yourself to get in even more debt all while in no way benefitting your credit score and robbing yourself of compounding interest on your future retirement…Makes perfect sense. But hey you get a down payment for a house that you totally can’t afford!

      • Kelly
        February 10, 2015

        “Those who understand compound interest are destined to collect it.
        Those who don’t are doomed to pay it.“

        Advising to tap into the 401k is only good advice for the mortgage broker and real estate agent, not so much for the home owner. Who wrote this article? Ohh, that’s right…

  4. thomas
    June 5, 2014

    This is
    really pretty cool place I like it because it has everything I want more on
    this blog soon.

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  5. Amit
    July 17, 2014

    What’s wrong with renting??

    People should save their money until they have 20% or more. Cash only is ideal! Learn from the past people!

    Of course they look at me like I’m crazy when I suggest they cut a $100+ a month cable bill. Or drive a car that is 3 years old. Or only fill up their tank from the cheapest place according to GasBuddy. Or get $25/month budget car insurance from Insurance Panda. Or cook their own food instead of spending a hundred a week on restaurant food (or far more if they like the bar).

    You live exactly like people did in the 1970’s, and suddenly there’s tons of money. Usually moderate earners can save $500 a month on these types of luxuries. May not seem like much, but it’s usually the difference between being in financial trouble, and at least not losing ground.

    My point is that it’s so odd that people seem to forget all the little things we have, buy, use – that they didn’t in the “better” times. That stuff isn’t free.

    • Kelly
      February 10, 2015

      Some of you points are logical, sound advice. Unfortunately some are not so logical or sound.
      Most self made millionaires in the US buy used cars (pick-up trucks for that matter.) And not only is a high cable bill sucking the money out of your bank account, co sider what sitting on your butt and watching that TV is taking you away from in other aspects of your life!
      But I disagree with encouraging peoe to be underinsured as a way to save money, or driving miles out of the way to save a few cents per gallon on their gas. When you calculate the cost per mile driven, not to mention lost time, it usually doesn’t pay off.
      Otherwise, I’d like to have a beer with you. My treat 🙂

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    […] be able to find something for less than $300,000. And with down payments typically ranging between 10 and 20 percent, it is doable for the average buyer to own a home in New York City. But there are many factors you […]

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    […] of loan, but you probably want to shoot for more than this if possible. Here’s the thing about saving for a down payment—you need to tweak your budget and commit to a specific amount each month. Don’t just tell […]

  10. Thomas Watson
    January 13, 2015

    It is really one of the biggest hurdles in owning a house. So thanks for the great tips.

  11. Guest
    January 13, 2015

    Nice, interesting write-up.

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  15. Burt Silver
    March 21, 2017

    Thanks for the information on saving to buy a home! My wife and I really want to buy our first home soon, but we are having trouble saving the money we need. I like that you mentioned that you should look into borrowing from your 401k. That could be really helpful, I will have to look into it.

  16. Ron Dayley
    April 3, 2017

    In TN the THDA offers a $15k down payment assistance to home buyers in certain zip codes. You don’t have to pay back the $15k as long as you live in the house for 10+ years.


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