How long should you plan to save for a down payment?

How long you need to plan for a down payment depends on how much money you’re putting down and how much you can set aside.When saving for a house, it’s important to remember that location plays a big role. A 10 percent down payment on a house in San Jose, California, is going to be larger than the same house in Jackson, Mississippi.Timing is another important factor. Depending on your needs, you might opt to put less money down and take a higher interest rate in exchange for owning a home sooner.

To see how much your down payment will affect your monthly mortgage payment, run the numbers with our mortgage down payment calculator. You can also see how varying interest rates will affect your monthly payment.

10 ways to save for a down payment

1. Park the savings somewhere you can earn more money

Ideally, you should save your down payment funds somewhere that provides some return, such as a high yield savings account, money market account or certificate of deposit (CD).

Keep in mind your timeline, however. You wouldn’t want to put your savings into an 18-month CD if you’re planning on buying in the next year, for instance. If you have a longer homebuying horizon, you might consider doing a CD ladder to account for changing interest rates and avoid being tied into a single, long-term CD.

2. Automate your savings

With this approach, you’ll set up automated deposits of a portion of your income into an account for your down payment. For employees with a directly-deposited regular paycheck, you can have your  employer transfer a percentage of your paycheck to your  down payment account on payday. For freelancers, contractors or business owners, you can schedule a regular, automatic transfer to your down payment account.

3. Explore additional sources of income

If you have the spare time and effort, another source of income can help you save for a down payment. That can mean taking up a side hustle like freelancing, pet sitting, babysitting or working for a gig app company (like Uber, Instacart or Doordash). You might even be able to turn a hobby into a way to make money.

4. Look for down payment matching programs

Some mortgage lenders offer programs that match a specific amount of your savings. Those matched funds can then be applied to the down payment or closing costs. You might also be able to get matching as part of a non-profit or government down payment assistance program (more on that below).

5. Search for down payment assistance options

Down payment assistance could be an option if you’re struggling to save, especially if you’re a  first-time buyer. This assistance can come in a variety of forms, from deferred or forgivable loans to down payment grants. Each program has different eligibility requirements, usually based on income and location.

6. Reduce your expenses

If you’re trying to save for a down payment, going on a spending diet can help. Start with cutting unnecessary expenses, like subscription services,  entertainment, delivery services or eating out.

7. Request a raise

While each company’s financial situation and performance measures are different, you might be able to get paid more, especially if you have made valuable contributions as of late. Come to the discussion prepared, outlining the work you’ve done and how it’s impacted the company’s bottom line.

8. Ask for a gift

Many first-time homebuyers have turned to family members for help with a down payment. If a family member or friend is willing to give you some funds for your home, be sure to document this in a gift letter for your lender.

9. Press pause on other savings goals

Consider temporarily prioritizing your down payment over other savings goals. For instance, you might postpone saving for a vacation or reducing or delaying your retirement savings.For first-time homebuyers with an IRA, know that tax law allows you to withdraw up to $10,000 to buy your first home. If you’re married and you’re both first-time buyers, you each can pull from your retirement accounts, meaning a potential $20,000 toward your down payment.

Just know that, while you won’t face an early withdrawal penalty, you’ll still need to pay taxes on the amount you take out. Note, too, that this is just for traditional IRAs; using your 401(k) to buy a house will result in an extra 10 percent penalty.

10. Move back home

While not an option for everyone, if you’re able to, moving back into your parents’ house temporarily can help you save for a down payment. As of May 2023, the national median monthly rent was $1,995, according to Rent.com. If you are able to move back home and save that money, that would mean saving nearly $24,000 after a year.

Other costs to save for when buying a home

• Closing costs: Closing costs might include an origination fee, title fee, appraisal fee and more. They typically cost 2 percent to 5 percent of the principal of your mortgage.
• Mortgage reserves: Depending on your credit or financial situation, your lender might require you to have several months’ worth of mortgage payments in reserves.
• Maintenance: You’ll need money to pay for things like painting, cleaning, outdoor maintenance and maintaining home systems, such as heating, plumbing and electrical.
• Moving expenses: Depending on distance and amount of stuff you’re moving, the costs can add up. The average cost to move ranges between $300 and $7,000, according to MyMove.com. It’s going to be more expensive if you’re doing a long distance move.
• Emergencies: When you own a home, it’s especially important to have an emergency fund. This is money you’ve set aside in case something unexpected happens, like you lose your job, your furnace goes out or you get injured. Ideally an emergency fund will cover your bills for several months.

Final word on saving up for a down payment

The down payment for a home purchase is a significant expense that often keeps many prospective homebuyers on the sidelines. Not all mortgage loans however, require a 20 percent down payment. Conventional loans and FHA loans only require 3 percent and 3.5 percent down, respectively, VA and USDA mortgages, meanwhile, don’t require any down payment at all.

If you’re still struggling to accumulate enough for a down payment, there are steps that can accelerate your savings efforts, including using high-yield savings and CD deposit accounts, cutting back your spending elsewhere and looking for down payment matching programs. If those steps aren’t enough, you might also consider asking for a raise at work or even moving back home for a while in order to eliminate rent payments altogether.