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How to Save a Down Payment for a House

9 Minute Read

Tired of renting? We get it. The pressure to buy a home right now is real, especially as rent prices continue to rise.

According to Pew Charitable Trusts, median rent increased by 32% from 2001 to 2015 and household incomes have struggled to keep up, causing a growing burden on renters across the country.(1) As your rent payment gets higher, it’s even harder to save up money for your future home.

And you’re not alone. If you’re like most renters, money is the top reason you haven’t bought a home yet. In fact, Builder Online estimates that it would take young Americans over seven years to save up a 10% down payment.(2) No wonder so many first-time home buyers go with "creative financing" options that allow a small down payment but cripple their ability to build wealth!

But how can you save up a big down payment while rent is eating up more of your paycheck? Well, we’ve got a simple plan to help you out:

Step 1: Start With a Clear Down Payment Savings Goal
Step 2: Cut Some Expenses in Your Budget
Step 3: Press Pause on Retirement Savings
Step 4: Boost Your Income With a Side Hustle
Step 5: Find More Savings and Income on the Margins

Not only can you reach your savings goal, but we believe you can also do it in less time than you think! Our 5-Day Home Buyer Savings Plan will help you discover simple tricks to save a five-figure down payment by this time next year!

Before You Start Saving for a Down Payment

But before we go any further, let’s pump the brakes for a second and make sure you’re ready to start saving for a down payment in the first place.

That means before you save a single penny for a down payment, you should be completely debt-free and have a fully-funded emergency fund of three to six months of expenses (these are part of Dave’s Baby Steps). Only then are you ready to start putting some money aside toward a new home.

You might think that you’re "throwing money away" by renting. But if you’re focused on your financial goals and have a plan in place to meet those goals, you’re not throwing that money away—you’re setting yourself up to win long-term with a strong financial foundation.

If you want your home to be a blessing and not a curse, it’s important to start off on solid financial ground. Freeing up your income from debt payments and being able to turn major emergencies into minor inconveniences does just that.

How to Save for a Down Payment in 5 Steps

Saving up a down payment on a house can feel overwhelming, but it’s simpler than you think when you have a plan! Here are five steps to help you reach your goal:

Step 1: Start With a Clear Down Payment Savings Goal

Before you start saving, it’s important to know what you’re working toward. So what’s a good down payment? Dave’s a fan of putting 100% down on a home, but that’s not feasible for everyone.

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Here are three questions to consider as you determine your down payment savings goal:

1. How much should I save for a down payment?

If you can’t pay cash for your home, plan to put at least 10% down, though 20% is even better because you’ll avoid private mortgage insurance (PMI)—an extra cost your lender tacks on to your monthly payment just in case you don’t make payments on your loan.

Here’s a tip on how to buy a house you can afford: Stick with a 15-year fixed-rate mortgage that’s no more than 25% of your monthly take-home pay.

Wondering how you’ll find a home you love that fits your budget? Your real estate Endorsed Local Provider (ELP) can help you target your home search based on your price range.

2. How long will it take me to save for that down payment?

This is up to you, but patience really does pay off! The more time you give yourself, the more you can save. And the more money you save, the less your mortgage loan will cost in the long run.

Stay focused and you should be able to save a nice down payment in two to three years. Try not to take much longer than that to save for a down payment, though. You don’t want to delay too long before you start saving for retirement or the kids’ college funds.

3. Where is the best place to put the money I’m saving for a down payment?

In most cases, a down payment is not an investment. Unless you plan to save for five years or more for a down payment, you just need to park the money somewhere. A money market savings account will get the job done. You won’t make any money on your money, but you won’t lose it either.

So, let’s say you have 24 months before you want to buy a home, and you decide to save $40,000 to cover your down payment plus closing costs and other moving expenses. Now you’ve got your goal set up! Here’s how to find that kind of cash and fast-track your savings!

Step 2: Cut Some Expenses in Your Budget

Let’s start with the money you’re already bringing in every month. That’s right—let’s flex your budgeting muscles!

You’ll be amazed at how much money you find just because you’re paying attention to your spending. Here are some ideas to help you tighten your spending temporarily while you work on piling up cash for your new home:

  • Take a break from the gym: $60 per month
  • Save eating out for special occasions: $250 per month
  • Trim your clothing budget: $100 per month
  • Buy generic brands at the grocery store: $160 per month
  • Cut the cable: $60 per month

These tips could save you $630 every month! That adds up to more than $15,000 over the course of 24 months. You can always get creative and find even more ways to save!

Step 3: Press Pause on Retirement Savings

If you’re already saving for retirement, this might feel really weird. After all, Dave normally recommends you start investing 15% of your household income for retirement right after getting your emergency fund in place.

But if you’re planning on buying a house in the near future, temporarily stopping your retirement savings and redirecting those funds toward your down payment can be a great idea if you do it for a short period of time (think two years or less).

If you’re currently investing $500 a month into 401(k)s and IRAs, that means you could save around $12,000 in two years. That’s a big boost to your savings timeline! Once you’re done, you can jump right back into saving for retirement.

A word of warning: Do not borrow from or cash out your retirement accounts in order to save up for a down payment. Not only will you get hit with taxes and early withdrawal penalties, but you’ll also cripple the long-term growth of your retirement savings. It’s a mistake that could cost you hundreds of thousands of dollars at retirement.

Step 4: Boost Your Income With a Side Hustle

If you’re looking for another way to turbocharge your income, there’s nothing like picking up a side gig or a second job!

The best thing about getting a side job is that you can usually find something that you already enjoy doing. Here are some ideas to get you started:

  • Exercise regularly? Walk neighborhood dogs after work or referee sports leagues on the weekend. Get healthy and bring in some dough? That’s a win!

  • Have a heart for teaching? You can expect to make $30–40 an hour tutoring—even more if you live in a big city or have advanced degrees.(3)

  • Love pets? Let your friends and coworkers know you’re available to watch Rover the next time they’re out of town.

So, is it worth it? Say you work 16 hours per week making $10 per hour. That’s an extra $120 per week after taxes. Keep that up and you’ll have more than $12,400 to add to your down payment savings in 24 months.

Step 5: Find More Savings and Income in The Margins

Think twice about your "extras" this year and you can reach your goal even faster! Here are a few ideas to get you started:

  • Say no to this year’s getaway so that you can say yes to your perfect home instead! You could pocket $2,000 from that alone.(4)

  • Have stuff you can sell? Take advantage of online sites or even an old-fashioned garage sale to bring in some extra dough. Scoring $500 from a Saturday morning garage sale? That’s a win in our book.

  • Get an annual bonus or raise? The average pay raise in 2018 is expected to be around 3%.(5) Stash it in savings instead of blowing it on a big TV this year. That could be an easy $1,500 bump!

That’s an extra $4,000 right there! Try these tips and you’ll be well on your way to reaching your down payment goal!

DOWN PAYMENT SAVINGS GOAL: $40,000 in 24 Months

CUT YOUR EXPENSES $15,000.00
REDIRECTED RETIREMENT SAVINGS $12,000.00
EXTRA INCOME FROM SIDE HUSTLE $12,400.00
SELL STUFF / SKIP SPLURGES $4,000.00
TOTAL SAVINGS $43,400.00

Make the Most of Your Down Payment

When you’ve worked so hard to save up a big down payment, the last thing you want to do is make a bad financial investment. That’s why it’s so important to work with an experienced real estate pro who has your best interest at heart.

Our ELPs help first-time home buyers like you all the time. Here’s what Angela had to say about her son’s experience working with one of our real estate ELPs:

"I was looking for a reputable real estate agent to work with my son—a first-time home buyer who lives out of town. From start to finish, your ELP made sure his interests were well represented. She contacted and met with contractors to secure bids and even negotiated a new roof."

Our real estate ELPs are the best in the business, with top-notch customer service and years of experience in your local real estate market. When it comes to your biggest financial investment, don’t leave it in the hands of an amateur. Work with one of our real estate pros. We make it easy to find the right agent for you in your local market.

Get in touch with a real estate pro today!

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