Saving for a Down Payment

Now you’re ready to hit the ground running toward saving for a down payment. If you’re getting a mortgage, we’ll share some savings guidelines that’ll set you up for success when buying your dream home.

How Much Should You Save?

As with any goal, it takes planning and preparation to buy a home the smart way—especially if you’re taking out a mortgage. The most time-consuming task is saving enough cash for the down payment, closing costs and moving expenses—but hang in there. You can do this! Just take it one step at a time.

To give you a clear picture of what this step looks like, here’s an example of how much money you’d probably need to save up if you were to purchase a $185,000 house or condo:

How Much to Save

($185,000 Home)

Dollar Amount

Percentage of 

Home Price 

Down payment

$9,250–37,000

5–20%

Closing costs

$5,550–7,400

3–4%

Moving expenses

Around $1,850

Around 1%

Total

$16,650–46,250

9–25%

 

If these numbers feel too steep, we get it. Things like student loans, credit card debt and car loans might be slowing you down from being able to save up something as big as a home down payment. Remember, that’s why you need to get out of debt ASAP and have an emergency fund of 3–6 months of expenses before buying a home. The good news is, we’ve shown millions of people how to do this through Financial Peace University—where you can learn a proven plan to pay off debt fast and save more money for your future.

Down Payment

Once you’re in good financial shape, set a down payment savings goal. Ideally, you want a down payment of at least 20% of the home’s purchase price. Putting down 20% allows you to avoid paying for private mortgage insurance (PMI). Remember, PMI doesn’t benefit you at all.

If you’re a first-time home buyer, saving 5–10% is okay too. But then you’ll have to pay for that PMI (boo!). No matter what, make sure your monthly payment is no more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage. And stay away from expensive VA and FHA loans! (Don’t worry, we’ll cover more details on mortgage types in the next section.)

Sure, 5–20% of a home might feel like a crazy amount of money to save. But it is possible! Suppose you’re buying a $185,000 house or condo and want to save a $9,250–37,000 down payment. If you tighten up unnecessary expenses and stash away $1,000 of your monthly budget, you could have that down payment saved in around nine months to three years—not bad!

Closing Costs

On average, buyers might pay 3–4% of a home’s purchase price for closing costs.1 But yours could be more or less than that depending on where you live—so do your own research to get a better idea of what average closings costs are like near you. When you close on a house—which is basically just signing all the paperwork that officially makes your new home yours—you have to pay for expenses like:

  • Loan origination fees
  • Credit reports
  • Underwriting fees
  • Appraisal fees
  • Title fees

Remember, you’ll also need to cover property taxes and home insurance—lenders call these prepaid items. Your real estate agent and lender will give you a detailed list of these costs before your closing day.

Moving Expenses

You can always save money on moving costs by asking friends for help. Or you could rent a moving container from a trusted moving and storage company like PODS. Otherwise, hiring movers can cost hundreds to thousands of dollars depending on how much stuff you’re moving and how far away you are from your new home. If you go that route, be sure to get quotes from local moving companies ahead of time to help with budgeting.

You’ll also want to prepare your budget for other moving costs, like utility transfer fees and any immediate updates to your home (like painting or installing blinds).

If you don’t have enough money saved for these up-front costs, you’ll either need to hold off on your home purchase for now (you’ll thank yourself later) or shoot a little lower with your home price range. Whatever you do, don’t let the closing costs keep you from making the biggest down payment possible. The larger the down payment, the less you’ll owe on your mortgage!

How to Save

Okay, now let’s cover the smartest ways to save for a house. We already mentioned how being debt-free and having a full emergency fund is essential before buying a house—plus, it frees up your cash flow! And that’ll help you save for a big down payment faster. But how else can you speed up your timeline? Try these tips:

  • Follow a budget. The best way to control your money? Budgeting! Here’s how: First, list your monthly income, and then list your monthly expenses (including your monthly down payment savings goal). Next, subtract your expenses from income (this should equal zero, giving every dollar a job). Finally, track your spending (all month long), and make a new budget before the next month begins. (P.S. this process is way easier with our free budgeting app, EveryDollar.)
  • Tighten your spending (temporarily). Once your budget is under control, try cutting unnecessary spending. Things like postponing fancy vacations, eating out less, and suspending subscriptions (bye-bye, Netflix) will go a long way in helping you pile up more cash in your down payment fund. And don’t worry—you can always add these things back into your budget after you’ve reached your savings goal.
  • Use a money market savings account. Keep your down payment savings in a safe place that’s easy for you to access—like a simple money market savings account. And definitely don’t put this money into any sort of risky investment account. Sure, you’re not going to make tons on interest in a money market account. But you won’t lose money either!
  • Hold off on your retirement savings (temporarily). You can pause your contributions to your retirement accounts (even the match) if you want to go crazy and save up your down payment as fast as possible. Just don't pause for more than two years. If it takes longer than that to save up your down payment, start investing again while you continue to save.
  • Start a side hustle. To really hit the gas on your down payment savings, pick up another job on the side. It doesn’t have to be anything fancy. You won’t be working there forever. So, choose something simple you won’t totally hate doing after your day job. Deliver some pizzas, drive for Uber, or try a freelance gig.

Saving for a home down payment is hard work, and it’ll take time.But you got this! Stay focused each month, celebrate every win, and before you know it, you’ll be sitting on a giant pile of home money that you’ve earned with your own blood, sweat, and tears. It’ll be well worth it!