How to Save for a Down Payment

After deciding you’re ready to buy a home, your first major step is to save for a down payment. Most people will have to spend some time saving for the down payment. It takes time, commitment, and discipline to save enough to put down on a home.

Here’s how to save for a down payment the smart way.

Start with a plan

Your first step is finding out how much you need to save. While lenders prefer buyers provide a 20% down payment, it’s not a requirement for qualifying for a loan. Depending on your credit score and income, you may be able to qualify for a mortgage with as little as 3.5% down (if you’re a veteran, you may be able to qualify with a 0% down payment). Research different mortgage programs and eligibility requirements to find one you may qualify for.

You also need to decide how much time you need to save your down payment. The sooner you want to buy a home, the more aggressive you need to be. If you want to save $50,000 within two years, you’ll need to save about $2,100 per month. The longer you take, the less you need to set aside each month.

Eliminate high-interest debt

Lenders care about how much debt you’re carrying so if you have a lot of debt, especially high-interest debt from credit cards, do your best to reduce or eliminate that before you begin applying for loans. Determine how much you owe on your credit cards, student, car or other personal loans and create a repayment plan. Remember: paying down debt helps you qualify for more favorable interest rates, which can save you thousands over the life of your mortgage.

Tighten up your spending

Your budget may need some adjustment if you’re saving for a new home. Take a good, hard look at your monthly expenses and income and see where your money is currently going. Find ways you can either cut back on how you spend or go without for the time being. This could mean reducing the cable or phone bill, cutting back on takeout and coffee, or canceling subscriptions you don’t use or need.

Sticking to a budget takes commitment but it’s also important to build in some flexibility. You may be saving for a home but that doesn’t mean demands on your finances will stop. Having a well-stocked emergency fund will help you manage these unexpected expenses without throwing a wrench into your down payment savings plan. Also, budget some fun money for you to spend so you don’t feel constricted. Remember, these changes are only temporary!

Open a separate savings account

Once you set your target savings goal, it’s time to start saving. Since you’ll be saving a large amount of money, it’s best to keep everything in one place so you can take advantage of compounding interest. Instead of using a traditional savings or checking account, consider holding your funds in a high-yield savings account or money market account. These accounts typically have higher interest rates and low minimum balances. Plus, since they’re not accessible through your regular bank, you’re less likely to take money from your down payment fund to cover other expenses.

Automation is your friend

Make saving easier by setting up automatic monthly transfers. Automating your savings contributions ensures you consistently contribute to your savings goal. It also reduces the chances that you’ll skip making the deposit on your own.

Stash those windfalls

Windfalls, like tax refunds, stimulus checks, cash gifts, holiday bonuses, annual raises, etc. are money you receive unexpectedly or infrequently. It’s a great way to pad your down payment fund without having to tap into your regular income and shorten the time it takes to hit your target goal.

Find additional sources of income

If you want to maximize your savings, consider finding additional ways to make money. You can ask for a raise on your job or even look for a higher-paying position. Side hustles are a popular way to earn extra income, whether you join the gig economy, provide services like tutoring, dog walking, or pet sitting, or even monetizing your creative hobbies. You can also make some quick cash by selling items you no longer need.

There are a lot of ways to save for a down payment. It can feel daunting but remember: small steps lead to big savings. Homeownership is a pillar of wealth-building so it’s important that you’re prepared for this investment. When you’re ready to get the home buying process started, visit us at to learn more about our new home communities in the Bay Area and our preferred lenders.

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