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How to Save a Down Payment for a House

Dave Ramsey down payment tracker hanging on a fridge.

Tired of renting? We get it. The pressure to buy a home right now is real, especially as rent prices continue to rise. All of your friends are buying houses. Plus, you’re really sick of paying rent just to walk your dog down three flights of stairs multiple times a day. Paying that much money, you should at least get a backyard! Needless to say, you’re ready for your own house.

There’s just one problem: You don’t have a down payment for a house yet. And it gets harder and harder to save for one when your rent keeps going up—on top of all of life’s other expenses.

Sure, saving up a down payment is hard, but you can do it! We’ve got a simple plan that will help you save a down payment fast.

How to Save for a Down Payment in 5 Steps

Saving a down payment on a house can feel like an uphill battle, but fear not. 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

The best way to save for a down payment on a house is to know the exact dollar amount you need. So, what’s a good down payment? We’re fans of putting 100% down on a home, but that’s not feasible for everyone. So ask yourself these three questions as you determine your down payment savings goal:

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

If you can’t pay cash for your home, go for 20% or more to avoid private mortgage insurance (PMI)—an extra fee added to your mortgage to protect your lender (not you) in case you don’t make payments. If you can’t get to 20%, never put down anything less than 10%—otherwise, you’ll be strapped paying so much extra in interest and fees and be in debt for decades!

Worried about affording a house? Our free Home Buyers Guide will help.

Here’s how to buy a house you can afford: Think 15 and 25. You want a 15-year fixed-rate mortgage that’s no more than 25% of your monthly take-home pay. And here’s why: A 15-year fixed-rate conventional loan is the overall lowest cost mortgage—it saves you tens of thousands (even hundreds of thousands) of dollars in interest fees compared to other types of mortgages.

Also, the reason your mortgage payment should never be more than 25% of your monthly take-home pay is because that limit leaves you with plenty of breathing room in your budget to tackle other financial goals—and keeps you from becoming house poor!

FYI: That 25% limit includes principal, interest, property taxes, homeowner’s insurance and PMI. Plus, don’t forget to consider homeowner’s association (HOA) fees when preparing your budget. Use our mortgage calculator to enter your down payment amount and try out different home prices within your budget.

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

This is up to you, but patience and hard work really do pay off! You should be able to save a nice down payment in two years. Try not to drag it out much longer than that though. You’ve got plenty of other money goals to take on next—like your retirement and the kids’ college funds (if you have kiddos).

3. Where can I put money for a down payment?

In most cases, a down payment is not an investment. So stashing that cash in a money market savings account will get the job done. You’re not going to make tons on interest, but you won’t lose money 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 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 when you pay attention to your spending. Here are some ideas to help you tighten your spending temporarily while you work on making that home dream a reality:

  • Take a break from the gym: $60 per month

  • Save eating out for special occasions: $200 per month

  • Trim your clothing budget: $100 per month

  • Buy generic brands at the grocery store: $160 per month

  • Cut the cable: $110 per month

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

Step 3: Press Pause on Retirement Savings

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

But if you’re planning on buying a house in the near future, hold off on your retirement savings and redirect those funds toward your down payment. It’s temporary, so don’t worry. Once you’re sipping coffee in your new breakfast nook, you can get right back to that 15% toward your retirement goal. Just make sure this is only a one-to-two-year detour, not a five-year pause!

Think of it like this: If you’re currently investing $500 a month into 401(k)s and IRAs, and instead, you put that toward your down payment savings, you could save around $12,000 in two years. That’s a big boost to your home savings timeline!

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

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. Your side hustle doesn’t have to be torture either. When you’re thinking up ideas, start with the stuff you love doing already. Check out these examples:

  • Like driving? If you don’t mind carting strangers around or making deliveries, you could make some sweet cash on a flexible schedule through companies like Lyft or Uber.
  • Enjoy teaching? Search online for tutoring jobs or ways to teach English to speakers of other languages. If you have advanced degrees, you could earn even more.
  • Love pets? Let your friends and coworkers know you’re available to watch Rover the next time they’re out of town. Get some fur therapy and make money at the same time.

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

Step 5: Find More Savings and Income in the Margins

It’s time to get tough and cut out some extras. Ouch! It might hurt some, but keep your mind on your why: home sweet home. Here are a few ideas to get you started:

  • Skip the nice summer vacay. You could pocket $2,000 from that alone.1
  • Sell stuff. Do you have a lot of extra stuff collecting dust around your house? Sell. It. All. 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.
  • Save all the money you earn from your annual raise or bonus. The average pay raise in 2021 is expected to be around 3%.2 Tell that big-screen TV it can wait. Stash that money in savings instead. That could be an easy $1,500 bump!

If you do all three of those, you’ll save an extra $4,000! Worth it.

Down Payment Savings Goal: $40,000 in Two Years

Cut your expenses

$15,000

Pause retirement contributions

$12,000

Earn extra income from side hustle

$12,400

Sell stuff / skip splurges

$4,000

Total savings

$43,400

 

For more tips, check out our Saving for a Down Payment Guide. It will give you even more practical tips to help you save a down payment fast. That white picket fence doesn’t seem like such a faraway dream after all.

Other Costs to Consider When Saving for a Down Payment

Brace yourself: A down payment isn’t the only expense you need to save for before buying a house. But don’t worry, the other costs are smaller and won’t take much longer to save for:

  • Closing costs. On average, buyers pay 3–4% of a home’s purchase price for closing costs.3 When you close on a house—which is basically just signing all the paperwork that officially makes your new home yours—you must pay for expenses like: loan origination fees, credit reports, underwriting fees, appraisal fees and title fees.
  • Moving expenses. You can always save money on moving costs by asking friends for help. Otherwise, hiring movers can cost $725–1,950 depending on how much stuff you’re moving and how far away you are from your new home.4 If you go that route, be sure to get quotes from local moving companies ahead of time to help with budgeting.

Keep in mind, there’s a chance the seller might actually cover your closing costs. But don’t bank on it. That usually only happens if the seller is in a hurry to move or as an alternative to repairing something that comes up during the home inspection.

Is It Better to Pay Off Debt or Save for a Down Payment?

If you have any debt, hands down, the smartest thing you can do is pay it off before saving for a down payment. Why? Because the biggest expenses that get in the way of people saving for a home purchase are all debt-related: student loans (51%), credit card debt (45%) and car loans (38%).5 The absolute best way to free up your income for savings is to pay off debt as fast as possible!

Then, go one step further and stash away three to six months’ worth of your expenses as a full emergency fund. Last year, a third of homeowners had to spend $1,200 toward an emergency home project.6 Imagine coughing up the cost of that emergency on top of losing a job and still trying to pay your mortgage—no thanks! An emergency fund saves you from all that.

Sure, it might feel like a bummer to hit pause on the excitement of saving for a home and replace it with the dullness of paying off debt and building up an emergency fund. But trust us, doing this will help you save your down payment faster—and protect you from a lifetime of stress and money fights in the long run.

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 picking an experienced real estate pro—who has your best interest at heart—is key.

The real estate agents in our Endorsed Local Providers (ELP) program are some of the best in the business, and they help first-time home buyers right in your local real estate market. Angela used an ELP—here’s what she had to say:

"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."

Your home isn’t just where your heart is—it’s also your biggest financial investment. Don’t leave it in the hands of an amateur. Work with one of our real estate pros and turn your homeownership goals into reality.

Find an expert real estate agent!

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Buy a House With an Agent Who Serves, Not Sells.

You need an agent who cares more about you than their commission check.
Find a Buyer's Agent

Buy a House With an Agent Who Serves, Not Sells.

You need an agent who cares more about you than their commission check.
Find a Buyer's Agent