9 Ways To Save For A House Down Payment

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You may be thinking of buying a house in the next few years but wonder how to save money for a down payment. Homeownership is a dream of many Americans, and getting there can seem complicated.

Conventional mortgages require at least a 3% down payment for homebuyers, while FHA mortgages require either 3.5% or 10% down, depending on your credit score. 

However, even with a lower down payment, you still need to have enough money saved up to cover closing costs and title insurance that come with home purchases.

In this article, we'll go over creative ways to save money for a house down payment, so that you can buy your dream home.

Let's jump right in.

1. Figure Out How Much You Need To Save

Before you determine how to save money for a house down payment, you need to figure out how much you need. This is a relatively easy task if you already have your eye on an exact house or price range.

If you plan to purchase a house that costs $300,000, and you want to put 5% down, you would need $15,000 just to cover the down payment. This would not cover closing costs, however.

On the other hand, if you wanted to put 20% down to avoid private mortgage insurance, then you would need to save $60,000 on top of any closing costs you would incur.

Check out this article on how to save $10,000 in a year.

2. Determine Your Deadline For Buying a House

Saving for a down payment on your new home will take some time. Having a deadline for your savings goal will help you determine how much you need to save per month. 

For example, if your goal is to buy a house in 5 years, and you need to save $50,000, then doing the math, you'll determine that you need to save $10,000 per year, or just under $835 per month.

If your time horizon is more short-term, such as if you want to buy a house within the next year or two, then you'll need to save more per month.

3. Cut Back on Living Expenses

One simple way to save money for a house down payment is to cut your living expenses.

Here are two simple ways to save money:

• Trim: Sign up for Trim and let Trim lower your cable, internet, and phone bills by up to 30%, identify and cancel unused subscriptions, and negotiate your interest rates. Trim is mostly free in that you only pay a small portion of what Trim saves you.
• The Zebra: Head over to The Zebra, a free insurance comparison website. Shop auto, home, renters, life, and business insurance all in one spot. You could save hundreds per year in just a few minutes.

Here are two more ways to reduce spending:

• Going out to eat less often and cooking more.
• Reallocating some of your discretionary spending into your house savings fund.

There are many more ways to lower your living expenses. Check out this article for 35+ ways to reduce your expenses and save money.

4. Transfer Money to Savings Each Month

Transferring money from your checking account to a savings account every month makes sense and is an effective way to save for a house down payment.

Setting up automatic transfers will allow you to save without thinking and give you the freedom to focus on other things. 

To do this, consider creating a house down payment fund and setting up a monthly transfer from your checking account to this fund. That way, you won't even have to think about saving for your house.

Check out this article to learn how to automate your finances so that you can save money monthly on autopilot.

5. Get a Temporary Side Hustle or Part-Time Job

Another effective way to save money is by getting a part-time or side hustle to earn some extra cash.

A part-time or second job may not pay as well as your main 9-5, but the extra income will add up over time. By working extra hours during the week and on weekends, you'll increase your savings significantly.

Some ideas for a side hustle to help you save money for a house down payment include:

• Becoming a Lyft driver. Average drivers make between $16 and $17 per hour.
• Offering to do tasks on TaskRabbit: Task rates vary greatly by type of task and the location you're in, but you can expect to earn anywhere from $15 per hour to upwards of $60 per hour.
• Becoming a delivery driver for Postmates, DoorDash, Grubhub, or UberEats. You’ll be paid based on the deliveries you make and the tips you get.

Here's an article with 140+ side hustle ideas to get you started in this gig economy and help you earn more money towards the down payment on your house. Here's another article with some side hustles you can do from the comfort of your bed.

6. Live on a Tight Budget to Maximize Savings

Living on a tight budget will help you save money for a house down payment as you'll have more money saved each month. Real estate is one of the most expensive purchases you'll make.

Here are some tips on how to live on a tight budget with plenty of leftovers so you can put away as much cash as possible towards your down payment:

• Don't buy things that aren't essential.
• Don't eat out too often.
• Look for inexpensive ways to entertain yourself.
• Use free entertainment options such as the library or a local park instead of paying to go out.
• Take advantage of free events in your town.
• Carpool or ride bus to work – if you live in a city, there are probably already transit options that can save you money.

7. Sell Things You Don't Use Anymore

You can raise money fairly quickly by selling things you don't use anymore. Two places to sell your stuff are Craigslist and eBay. You can also sell things on Facebook Marketplace or simply at a yard sale.

To get started, write a list of all the things that you don't use anymore but are in good condition. Make sure to include everything, as even old clothes and broken appliances can be sold for cash.

Take your time finding buyers so that you get the most money possible out of your items – people will expect to pay less for secondhand goods than they would for new products.

8. Save Your Tax Refund and Other Windfalls

Save for a house down payment by saving windfalls such as tax refunds, stimulus checks, and prize money.

When you get your tax refund, it's tempting to use that cash on new clothes or a fun trip with friends. However, resist the urge to spend it on luxuries in order to get closer to your dream of homeownership.

If you regularly save annual tax returns for your down payment, you may be able to cut off months of savings every year that you get a sizeable refund.

9. Borrow From Your Retirement Accounts

You can get money for a house down payment by borrowing from your retirement savings. If you have an IRA, you can withdraw money penalty-free in most cases if you're a first-time homebuyer.

Withdrawing money from a retirement account may not always be in your best interest, as such withdrawals could be subject to taxes. Additionally, by removing money from your retirement accounts, you'll have less money invested, which means less returns on your money for the future.

That said, borrowing from your retirement accounts can be an effective way to put a down payment on a house if you plan to pay off the loan quickly.

A financial advisor can help you determine which option is best for you.

How Much Should You Save for a Down Payment on a House?

When deciding how much money you should save for a down payment, remember that the more cash you have saved, the lower your monthly mortgage payment will be. If your down payment is less than 20%, your mortgage lender may make you pay for private mortgage insurance (PMI). 

PMI protects the lender in case you default on your mortgage.

In short, the more you put down on your house, the lower your monthly mortgage payment will be.

Where To Put Down Payment Savings

A high-yield savings account in an online bank is one of the safest places to store your down payment money, and they generally have a higher interest rate than regular savings accounts. 

Investing is also an option to get to your savings goal faster if you're okay with the risks involved. 

Consider a separate savings account entirely when saving with a bank. That way, you'll know exactly how much money is allocated for your upcoming home purchase.

Wrapping It Up

In this article, we discussed how to save money for a house down payment. The best ways to do so are arguably the ways that you feel most comfortable doing.

What ways will you save for a downpayment on your upcoming home purchase?