9 Ways To Save For A House Down Payment

Money in a jar next to a wooden house signifying saving money for a 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 5% down payment for homebuyers, while FHA mortgages require only 3.5% down. 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're looking to get a conventional mortgage, you'll need to have a down payment of about 5% of the home's purchase price. If you're looking for an FHA mortgage, you'll need 3.5%.

So, for example, if you plan on buying a house that costs $200,000, you would need to save $10,000 for a 5% down payment or $7,000 for a 3.5% down payment. This is before closing costs and other fees. Depending on your lender, you may also need to pay one year of property taxes upfront at closing. The more you put down, the lower your monthly mortgage payments will be.

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

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2. Determine Your Deadline For Buying a House

Saving for a down payment on your new home will take some time, but you should also have a deadline. For example, if your goal is to buy a house in 5 years, and you need to save $10,000, then doing the math, you'll determine that you need to save $2,000 per year, or just under $170 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

Some of the best ways to save money for a house down payment are by cutting your living expenses.

There are several ways to reduce your living expenses, including:

  • Lowering your auto insurance with a site like The Zebra: The average user can save over $440 per year on their premiums.
  • Using an app like Trim to automatically negotiate your bills for you. Trim users save an average of $685. Trim will negotiate your cable, internet, and phone bills, as well as medical bills. It will also cancel unused subscriptions and attempt to get refunds on bank fees that you've paid.
  • Going out to eat less often and cook more.
  • Reallocating some of your discretionary spending into your house savings fund.

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4. Transfer Money to Savings Each Month

Transferring money from your checking account to a savings account every month is one of the easiest and most effective ways 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 great 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. Average drivers make between $11 and 17 per hour, depending on the number of deliveries you handle in an hour.

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.

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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

Raise money fairly quickly is to sell 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.

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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'll cut off months, if not years, from your home-buying timeline.

9. Borrow From Your Retirement Accounts

You can get money for a house down payment is 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.

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.

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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 better. 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

Some people believe that a down payment needs to be saved in a bank account, but banks usually don't give competitive interest rates compared to other options.

Here are some other types of investments you can use to save money for a house:

  • Stocks: Stocks can generate higher returns than what you'd get from saving in your bank account, making them a good investment option for saving for a house down payment.
  • Bonds: Bonds are another way to earn returns with relatively low risk.
  • Certificates of Deposit: While CDs have a lower interest rate than other investment options, they are a safe way to earn a return on your money over a set amount of time.

Keep in mind that your money is at risk when investing. So make sure to do your research and ask for advice from an expert if necessary.

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 may be a better 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?