How to Save Enough for a Down Payment

Young couple paying bills together and managing budget, sitting on the sofa and using calculator and laptop

You've reached the point in your life where you're ready to put down roots and grow your wealth by buying your first home. While you may be ready to take on the monthly payments that may differ from what you pay now in rent and feel prepared handle the maintenance and upkeep yourself, you don't quite have the savings for a down payment.

Don't let current lack of savings make you think you'll never be able to become a homeowner. It may take a few years, but with diligence, smart money moves and an understanding of the assistance programs that may be available to you, saving for a down payment isn't so bad.

Here are five steps to help you save enough for the down payment you need for a home:

Decide How Much You Need to Save

The standard down payment for a conventional loan is 20% of the home's purchase price. Of course, saving up $60,000 cash to buy a $300,000 house, or in a more expensive market, $170,000 to buy a house costing $850,000, feels unachievable for a lot of people.

Lower mortgage down payments are available, however, in programs that may include a higher interest rate or require private mortgage insurance. "Try not to let the amount of the down payment get in the way of purchasing a home," says Miki Adams, president of CBC Mortgage Agency, part of the Cedar Band Corporation based in Utah, which provides down payment assistance and loans particularly for underserved markets.

Mortgage options requiring less than 20% down include loans through the Department of Veterans Affairs, the Federal Housing Administration, the Department of Agriculture or the purchase of private mortgage insurance. Some of these programs allow homebuyers to get financing with as little as 3% (or even 0%) down.

To find a low down payment option you may qualify for, Adams recommends consulting with a housing counseling agency approved by the U.S. Department of Housing and Urban Development. These housing counseling agencies provide free help across the U.S. to find loan and down payment programs you may qualify for, as well as giving advice for getting your finances in order to make homeownership a reality. HUD has a list of approved housing counseling agencies that offer free services to residents.

"If having a lower down payment is a priority for you, focus on finding a loan officer who specializes in low down payment programs and assistance," wrote Nadia Aziz, general manager of home loans for online real estate company Opendoor, in an email. "My recommendation is to have at least 3.5% down of your total home purchase budget saved. This is the minimum required by low down payment programs like the Federal Housing Administration."

Tighten Your Monthly Budget

What are your saving options? For the most part, they're the same as saving for any other reason: taking a bag lunch to the office instead of eating out every day, cutting cable or online subscriptions and canceling a gym membership.

Of course, eliminating unnecessary purchases doesn't mean you should be going hungry or letting your car fall into disrepair. A budget to maximize saving shouldn't mean you have to suffer. "Save an amount of money each month that's within your comfort zone," Adams says.

According to the National Association of Realtors' 2021 Home Buyers and Sellers Generational Trends report, based on a survey of more than 8,000 people who purchased a home between July 2019 and July 2020, 23% cut spending on luxury or nonessential items, 15% cut out spending on entertainment and 12% spent less on clothes. Younger homebuyers tended to make more sacrifices in order to save up to purchase a home, while older homebuyers were less likely to need to make any sacrifices at all, according to the report.

Put a Halt on Vacations and Luxuries

While you're taking a look at your regular budget, consider putting off some of the bigger purchases you plan to make for the sake of putting those funds toward your down payment.

Calling off a weeklong vacation later in the year, for example, could mean thousands of dollars that go toward your down payment savings instead – even if you were looking forward to traveling post-pandemic. NAR's report showed canceling a vacation as the fourth-most popular sacrifice made to purchase a home, with 7% calling off a trip.

By putting off luxury purchases, you're also likely to lower the amount you put on your credit card, which can help raise your credit and secure you a better loan in the future. "To increase your credit score, use credit cards wisely," Aziz says. "Keep your credit card utilization rate, which is the percentage of your total available credit you use, below 30%, and try to pay off your balance each month if possible."

Consider New Earning Options

If you'd like to boost the amount of savings you put away each month, you may consider a second job or earning opportunity. This may be the perfect time to explore a side hustle or consider a seasonal job to add to your current income.

NAR's report revealed 5% of all surveyed buyers reported earning extra income through a second job in order to purchase a home. The choice was most popular among homebuyers age 22 to 30, with 10% of buyers in the age bracket taking on a second job.

Keep an Eye on Financing Programs That Will Help You Buy a Home Sooner

There is some respite for first-time homebuyers when it comes to borrowing options thanks to the growth of low down payment mortgage programs.

With a 3% down payment for a $300,000 house or condo, you'll need just $9,000 in cash instead of the $60,000 with a standard 20% down payment. The mortgage insurance required with most types of low down payment programs increase your monthly payment, but it means you can still buy a home if you have less in savings.

There are also down payment assistance programs, which provide the funds needed to make a down payment either as a grant or secondary lien on the home. These programs can help you close the gap between your savings and what you need to cover both your down payment and closing costs. Aziz points out that many state and city governments offer down payment assistance programs for eligible residents.

As you search for programs you may qualify for, consider government agencies and adjacent organizations that also offer similar programs – CBC Mortgage Agency, for example, provides down payment assistance through multiple programs.

While you save, it's important to keep an eye on your credit score and do any work you can to improve it, Adams says. While you may want to save as much as possible for your down payment, it's just as important to reduce outstanding debt and make regular payments on credit cards, student loans or a car loan.

"The decisions you make today are really going to impact your homebuying ability," Adams says.


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