Saving for a House? Here's the 12 Best Ways to Save for a Down Payment
Our readers always come first
The content on DollarSprout includes links to our advertising partners. When you read our content and click on one of our partners’ links, and then decide to complete an offer — whether it’s downloading an app, opening an account, or some other action — we may earn a commission from that advertiser, at no extra cost to you.
Our ultimate goal is to educate and inform, not lure you into signing up for certain offers. Compensation from our partners may impact what products we cover and where they appear on the site, but does not have any impact on the objectivity of our reviews or advice.
Are you a renter in the process of saving for a house?
If so, you’re not alone. However, rising housing costs, especially in urban areas, mean that homeownership is on the decline.
In fact, 50 percent of renters are putting over 30 percent of their income towards housing.
With so much of our income going towards housing expenses, is it even possible to save for a home?
Fortunately, the answer is yes. While it will take time, work, patience, diligence, and commitment, if you follow these 12 steps, you’ll be in your own home sooner than you think.
12 Tips to Help When You’re Saving for a House
Even if you’re on a tight budget, there are some ways you can build up the funds to buy the home of your dreams.
1. Figure out how much you’ll need
Before you even begin saving, you need to decide how much you need to save. Having that goal gives you something concrete to work toward, and keeping track of your progress towards a tangible target makes it easier to keep going when saving becomes hard.
To figure out how much you need to save, do some research. Choose a few areas or neighborhoods where you’d like to live and research the average home price. Make sure you’re looking at the cost of homes that have features you’d prefer. You don’t want to save for a three-bedroom house when you’d ideally like five.
It’s better to save more than you need than to not have enough.
2. Determine your time frame
Once you have a handle on how much you need to save for a down payment, figure out how much flexible spending you have to throw into savings each month. Divide the down payment by the monthly amount you’ll save, and you’ll have how many months it will take to save your down payment.
Remember that this is just an estimate so you can start formulating a savings plan. Use our savings goal calculator to figure out how much you need to set aside each month. You can always add money to your house fund as you earn or find more.
3. Make saving for a house a priority
If you’re serious about buying a house, you need to be equally serious about saving for a house. The more money you have to put down means the less you’ll have to mortgage, you’ll be able to avoid private mortgage insurance (PMI), and you’ll have more bargaining power. That’s a great position to be in, especially if you’re a first-time homeowner.
The most effective way to make savings a priority is to automate it. When you automate your savings, a fixed amount of money is withdrawn directly from your account and deposited into a savings account, preferably a high-yield online savings account. Online savings accounts are preferable to an account at your local bank’s branch because they have significantly higher interest rates, and with limited access, you won’t be tempted to use the funds.
Setting it up this way means less work for you, including remembering to transfer the money. It also means that it’s a line-item expense in your budget.
4. Create a budget
It’s essential that you know how much you have coming in and going out because, without that information, you won’t know how much room there is for you to save. Knowing how much you can save each month informs you how long it’ll take you to reach your target for your down payment.
If you’ve never created a budget before, an easy place to start is with the 50/30/20 budget. The basic premise involves dividing your spending into three categories: needs, wants, and debt payments/savings.
You then allocate 50% of your income for needs, 30% for wants, and 20% for savings and debt. As an example, groceries would be in the needs group, makeup would be a want, and student loan bills would be a debt payment.
There are plenty of other ways you can make a budget if this method doesn’t work for you.
You can also use budgeting apps if you don’t want to track your spending by hand. Whatever method you choose, creating a budget will let you see where you’re spending money, where you can cut, and how you can increase your monthly down payment savings.
5. Pay off credit cards and other debts
One of the first things you should do before saving a house is to pay off credit card debt. The faster you can pay off high-interest credit card debt, the sooner you’ll be able to save for a home.
Your credit score will improve as well. And with a higher credit score, you’ll be able to secure better mortgage offers which, in turn, makes your home more affordable.
As you pay off your credit cards and other debts, you can take the money you were paying to the creditor and instead, use it to pay yourself. It’s a simple and effective way to increase your down payment savings each month with minimal impact to your budget.
Let’s look at an example. Say you have a $300 a month car payment and you’re currently saving $150 each month for your home. By paying off your car and adding it to your savings, you’re now putting $450 per month toward your down payment without having to work extra, cut expenses, or sell anything.
6. Sell things
A quick and effective way to earn money for your down payment is to sell unused items you find around your home. Remember that sewing machine you bought with the idea that you were going to learn to quilt? Sell it! Sell your used furniture, old books, shoes, wedding dresses, toys, and even electronics and video games.
Selling your items can be as simple as posting in your local Facebook Marketplace, holding a yard sale, or bringing them to consignments shops. But an even easier way is to sell your items online. If you’re looking to cash in on old games, electronics, books, and other like items, Decluttr is a great place to start.
Decluttr buys and resells your old CDs, DVDs, games, books, LEGO®, and technology. It acts as the middleman so you don’t have to manage a listing, pay for shipping, or deal with buyers.
7. Start a side hustle
If there’s no room to cut anything from your budget or reduce expenses, you can always start a side hustle to make extra money or find a part-time job. Sometimes the best way to increase your savings is to increase your income, as long as you commit to using that money for your down payment savings.
An easy way to keep that money out of your hands is to have it directly deposited into your savings account rather than your checking account. That way it stays out of sight and out of mind.
8. Skip Vacations
While this isn’t the most ideal option, it is one that can generate significant savings for your down payment. If you have a vacation fund, take that money and put all (or most) of it directly into your down payment account. Depending on how much you spend on your annual vacation, skipping one or two vacations could serve as a big boost to your down payment savings.
Not taking a big vacation doesn’t mean you have to skip vacations completely. Instead of flying somewhere and staying in a hotel, consider less expensive vacation ideas like camping, playing tourist in a nearby city, or taking a long weekend rather than a week. You can even take a relaxing staycation and enjoy sleeping in every morning in your own bed.
9. Scale back holiday expenses
While you’re saving for your new home, it might be necessary to scale back your holiday spending. Rather than giving your kids or spouse extravagant, expensive gifts, stick to a strict Christmas budget. You can even make a game of it by setting a spending limit and exercising a little creativity to see how far you can make that money stretch.
More ways to save on the holidays include DIYing all of your gifts. It’ll still cost some money for materials, but the gifts will be thoughtful and meaningful. When you spend your first holiday in your new home, you’ll know the sacrifice was worth it.
10. Reduce expenses and save the difference
An easy way to add to your down payment savings is to reduce expenses in some basic living categories and bank the difference. You can also use a service like Trim to help lower your bills. Trim is a free automated savings app that can cancel unwanted subscriptions, track your spending, and negotiate bills on your behalf.
The average family of two adults spends about $625 per month on groceries. This is on a moderate plan that’s neither extremely frugal nor extremely luxurious. However, what if you did go extremely frugal for a while? How much could you sock away toward your down payment? What if you ate eggs and toast for one night a week, shopped sale items, and used coupons?
Buying items when they are on sale and stockpiling is also a good way to save money on food costs. Probably the most expensive part of most people’s food budgets is eating out. If you didn’t eat out at all for a year, how much money would you save? You don’t even have to be that extreme. You can make simple changes, such as eating out just once a week or only on special occasions. Try taking your lunch to work instead of going out to eat every day.
Your car probably takes up a lot of your income. If you can get by without one, sell it and carpool, take the bus, or ride your bike to work. You’ll save on car payments, maintenance, and insurance costs, which can help put you even closer to your dream (as long as you’re banking the money you save).
However, if you need a car or don’t want to be without one, you can still reduce your costs by batching errands to save on gas, asking if you can work remotely a few days a month, or negotiating your insurance rate. You can also learn to DIY basic maintenance like oil changes and brake replacement, thus saving money on service and repair costs.
Find smart ways to save on the utilities you do pay. If you are responsible for the electric bill, think of ways to save electricity. Turn off lights when not in use. Install power strips that don’t suck energy when devices such as the television or DVD player aren’t in use. Make it a goal to save a little more on your energy use each month. Even a difference of $10 is money you can throw toward the down payment on your dream home.
If you pay the water bill, find ways to reduce your water usage. Take a shorter shower, turn the faucet off while brushing your teeth, and reduce the number of loads of laundry. Again, the savings might seem small month to month but will add up over time.
11. Bank windfalls
One of the easiest ways to boost your down payment savings is to take any unexpected large sum of money such as tax refunds, bonuses at work, and cash gifts from relatives, and add it to your high-yield savings account. While it’s tempting to take that money and splurge on something fun, these windfalls will accelerate your ability to own a home.
12. Use down payment assistance programs
Down payment assistance programs are designed to provide financial help primarily to first-time homeowners (although previous homeowners may be eligible for some) and are generally available in the form of grants and loans. These are often tied to income or location requirements, but it might be worth checking with your state housing authority to see if you qualify.
Remember that while these grants and loans may be considered “free money,” it’s crucial to read the fine print to make sure you don’t have to pay anything back (or upfront).
Start Saving for a House Today
Saving for a house takes focus and perseverance. The best time to start is now. Figure out what your budget is and how much you can save. Once you have those basic facts laid out, it’s much easier to come up with creative ways to bring in additional money and reach your goals faster.