How To Save a Down Payment for a House

For many hopeful homebuyers, saving up a down payment feels like a hurdle they’ll never clear, especially when inflation is driving up rent and the cost of living.

But consider this your rallying cry to not give up. Buying a home is one of the best long-term investments you can make. And getting a house probably takes less money upfront than you think.

We’re going to tell you how to save a down payment for a house and make your homeownership dreams a reality in 2022.

How much do you need to save for a down payment for a house?

A lot of homebuyers mistakenly believe you need 20% for a down payment. If you’re among them, we’re about to make your day: There are many low and no down payment mortgages out there, especially for first-time homebuyers. 

If you took out a 3% down conventional loan for a $330,000 home, you’d need $9,900 down. On a 3.5% down FHA loan for the same home, you’d need $11,550.

Those aren’t small numbers, but they are much more achievable than the old 20% requirement. For a $330,000 home, 20% down would be $66,000.

All of the loan types mentioned above allow you to use gift funds and down payment assistance toward your down payment and closing costs as well. If you have friends, relatives, or even an employer program that can contribute toward your purchase, you may be able to buy with little or even no money out of pocket.

Run your down payment numbers

To estimate how much you might need for a down payment, run the numbers in our home affordability calculator. Once you have an estimate of what your homebuying budget might be, you can get an idea of how much you might need for a down payment.

The best way to know for sure is to get preapproved** for a home loan. Your lender will tell you how much you can borrow, which loan programs you’re eligible for, and how much you’ll need for a down payment and closing costs.

Closing costs are typically 2-5% of your loan amount, on top of the down payment.

Mortgage insurance on low down payment loans

One important thing to know about low down payment loans is that they often have a mortgage insurance requirement.

Conventional loans

Conventional loans require annual private mortgage insurance (PMI) if you put down less than 20%. Once you reach 20% equity in the home, you can request that PMI be removed. At 22% equity, the requirement falls off automatically.

FHA loans

FHA loans have an upfront and annual mortgage insurance premium (MIP). All FHA loans, regardless of down payment size, have an upfront MIP of 1.75% of the loan amount. If you put less than 10% down, you will owe annual MIP (typically 0.85% of the balance) for the life of the loan. If you put down 10% or more, the annual MIP requirement ends after 11 years.

USDA loans

Like FHA loans, USDA loans have an upfront and annual mortgage insurance fee. The upfront fee for a USDA loan is 1%. The annual premium is 0.35% of the loan balance.

VA loans

VA loans do not have an annual mortgage insurance fee. There is a VA funding fee, which is charged as a percent of your loan amount. The funding fee for first-time VA borrowers is 2.3%, and it increases with each subsequent use of the VA benefit. VA borrowers with qualifying service-related disabilities may be exempt from the funding fee.

3 tips on how to save a down payment for a house

We asked personal finance experts to share their advice on how to save for a down payment. 

Most of their advice falls into three categories:

• Automate your savings: Setting up automatic deposits or transfers into a savings account makes saving a habit
• Increase your income: This can mean starting a side hustle or asking for a raise, then
• Tighten your budget: The key here is to make only sustainable spending cuts — those you can continue without sacrificing too much quality of life

Let’s look more closely at each of these strategies.

Automate your savings

Experts recommend setting up automatic deposits into your savings account so that saving becomes a habit – and you don’t have to rely solely on self-discipline.

For example, let’s say you want to save $15,000 over three years for your conventional loan down payment. To meet this goal, you’d need to save about $96 a week.

Scheduling a weekly, automatic transfer of $96 into your savings account means you don’t have to remember to make this transfer yourself.

Alternatively, certified financial planner John Bohan suggests asking your employer to send that part of your paycheck directly into your savings account instead of checking.

“It will be painless because you will never see the money as it builds your savings,” he said.

That way you can’t possibly spend the money before your scheduled transfer because the cash never landed in your checking account.

Some banks offer round-up-into-savings plans. With these, each transaction rounds up to the next dollar with the extra change going into savings. The deposits are small, but they can add up to a lot over time.

Increase your income

The more money you earn, the more you can save. If you already spend every dime you earn on bills and other living expenses, you’ll need to start earning more money to save up for a down payment.

“There’s only so much you can save, but the money you can make is unlimited,” said Jacqueline Gilchrist, a personal finance blogger at Mom Money Map.

“Consider getting a part-time job or earning side income from being an Uber driver, bartender, or babysitter,” she suggests. You don’t have to keep these side gigs forever – just until you’ve been able to save up what you need.

Taking on a second job may not be possible for everyone, especially if you already work long shifts, are a single parent without local friends and family nearby to help with childcare, or have limited transportation. But you can look for flexible online gigs you can do for a few hours a week or as your schedule allows.

Other suggestions from financial experts:

• Ask for a raise at your current job
• Selling unused personal belongings on Etsy or eBay
• Deliver for DoorDash or PostMates
• Walk dogs for neighbors
• Get a roommate and save their rent payments

If possible, put all of your extra earnings directly into savings. Ideally, you’ll put the money into a high-yield savings account so that it’s readily accessible when you need it and it’s earning interest while you save.

Tighten your budget

You may be surprised how much wiggle room you already have in your monthly budget, especially if you don’t follow one.

Hunter Guthrie of Coho Financial Group in Anchorage, Alaska, recommends starting by subtracting your bills from your earnings to identify how much you have for discretionary spending.

“If you find you have $500 a month that’s going toward bills, you’ve probably been spending that $500 without knowing it,” he said.

Knowing how much you’re spending and on what can help you identify areas to cut – for instance, eliminating one or two streaming services if you have multiple, cutting back on take-out, or finding ways to reduce your grocery bills.

Cutting $200 a month in unnecessary spending would generate $2,400 a year in savings toward your mortgage down payment.

But be sure you leave some money in your budget for discretionary spending. This will help you avoid tapping into your down payment savings prematurely when bigger expenses come up. 

How to supplement your down payment savings

There’s another way to speed up your savings process: asking for help.

State and local governments offer down payment assistance through grants and loans. Each program has its own requirements, such as income limits, minimum credit scores, and a first-time homebuyer requirement.

First-time homebuyer in these instances usually means you have never owned a home or have not owned one within the past three years.

As noted earlier, many loan types allow borrowers to put gifts from friends and family toward their down payments. You could ask for down payment cash instead of birthday or wedding presents, for example.

If a close friend or relative is planning to sell their home and wants to help you buy, you might talk to them about making a gift of equity. This allows them to sell the home to you for less than its fair market value. The difference between the sale price and the home’s appraised value is applied to your down payment.

Learn more: Down Payment Assistance: 50-State Guide To Homebuying Programs (With Map)

How to save a down payment for a house FAQs

Planning and patience are key to saving for a house

The first step toward saving a down payment for a house is setting your goal. Get preapproved or use a mortgage calculator to get a sense of what you might be able to afford. That will help you calculate how much you might need for a down payment.

From there, you can develop a strategy for how you’ll earn more, save more, and look for community resources that will help you become a homeowner.

*A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits. USDA Guaranteed Rural Housing loans subject to USDA-specific requirements and applicable state income and property limits Fairway is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.

**Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation, which has not been reviewed by underwriting. If you have submitted verifying documentation, you have done so voluntarily. Final loan approval is subject to a full underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.