If you’re ready to make the jump from renter to homeowner, you’ll most likely need to save for a down payment. The typical down payment on a home is between 3% and 20% of the purchase price. While 56% of buyers with a mortgage put down less than 20%, saving up enough money for a down payment remains a top challenge for buyers across America.
Here are a few creative ways you might save for a down payment on a house.
1. Put a fixed amount in savings
With some planning and time, placing a little money into a savings account each month can be an extremely effective way to fund your down payment. According to the 2020 Zillow Group study, it’s the most common way buyers saved for their down payment — two-thirds (67%) of mortgage buyers reported funding at least part of their down payment by saving up over time.
The table below shows how much you can save over the course of one year, five years and 10 years if you save as little as $50 each month. This, of course, does not factor in interest if you were to keep your savings in a high-interest savings account or another investment format.
|1 year||5 years||10 years|
Saving up for a down payment the old-fashioned way takes time. If you’re wanting to buy a house fast, saving for several years may not be an option — especially since a down payment is often a moving target. As the market changes, home prices can soar and cause the minimum down payment requirement to rise. One way to help your savings grow faster is by choosing a high-interest savings account.
2. Sell your unwanted belongings
No matter the season, it’s always a good time to do a little spring cleaning. Selling off old clothes, furniture or electronics you don’t use anymore could help you bring in lump sums of cash and declutter your space. Depending on what you’re selling, there are a number of online sites that can help connect you with potential buyers. If selling online isn’t your thing, you can always throw together a garage or yard sale.
3. Reduce your cost of living
Although it might be a tough few months or so, downgrading your space, and therefore your monthly rent payments, might help you put away more money each month for your down payment. If you can swing moving from a one-bedroom to a studio or go from renting a house to renting a smaller apartment to save money, you might find that the savings add up quicker than you think.
Another way to lower your cost of living is by changing who you live with. Taking on a roommate can cut your rent in half. Or, if you have friends, parents or other relatives with a spare room, you might be able to pay little or no rent for a few months by staying with them.
4. Lower your monthly expenses
Do you really need the additional 60 channels with your cable package? Can you downgrade your internet speed? Have subscriptions you can live without? While these might not be ideal, there are a few concessions you might have to make to save for a down payment. Cutting back on your recurring monthly payments could help you save money faster. Just make sure you’re setting that money aside so it doesn’t linger in your account and seem like money you can spend.
5. Make small lifestyle changes to curb spending
Going to happy hour after work or going to the movies on the weekend are certainly fun activities, but cutting back on extracurriculars is an easy way to pocket more cash. Instead of going out to the movies, rent one from home or watch one you already have. If you’re missing the social aspects of going out, invite friends over for a game night.
One trick to spending less during the month is to try a spend-free weekend. For just one weekend out of the month, try not to spend a single dollar. You might be surprised how much you can actually save over a single weekend.
6. Ask for cash gifts
Aside from cutting back on your own spending, you can try to fund your down payment through gifted money. Many homebuyers have found luck asking friends and family for cash gifts towards their down payment in place of wedding gifts, birthday presents or gifts for other occasions. In 2020, 40% of buyers with mortgages used gifts or loans from family members to finance some of their down payment.
7. Add an additional source of income
If you’re willing to put in a little more work on the weekends or even after your regular day job, having a side gig could help garner you more cash. You could try dog walking, waiting tables, house sitting or selling handmade crafts online or to co-workers and friends.
8. Get down payment assistance
It’s not always entirely on your shoulders to figure out how to save for a down payment. Certain mortgages and buyers qualify for down payment assistance programs. These are often funded by local governments agencies or non-profits, and they can be grants or loans. Your real estate agent or mortgage lender could recommend down payment assistance programs, or you can search for them at the down payment resource center.
Source: July 7, 2021, Zillow.com/resources/stay-informed/save-for-a-down-payment/, All rights reserved.