Saving for a house is hard work (and might take a bit more time than you want it to), but you can do it! And we’ll show you how.
How to Save Money for a House
Like with any task that seems impossible, try breaking down saving for a house into smaller steps. (Remember, that’s how you eat an elephant—one bite at a time!) For example, saving a $40,000 down payment might feel impossible until you break it down into smaller monthly goals. If you pushed yourself to save $1,700 each month for 24 months, you’d hit that $40,000 goal.
We know that’s easier said than done. But don’t worry. We’ll show you how to set a realistic down payment goal, take control of your spending, and boost your income so you can save for a house as quickly as possible.
5 Steps to Saving for a Down Payment
It may sound intimidating to save for something as expensive as a house—especially while renting. But with a plan and some grit, you’ll be amazed at what you can accomplish! Let’s get started.
Step 1: Set a clear savings goal.
The first step in saving for a house is to know the exact dollar amount you actually need. In a perfect world, you’d pay for your house with 100% cash. But that’s not realistic for everyone.
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So, if you’re getting a mortgage, start by asking yourself these questions:
- How much should I spend on a house? The answer depends entirely on your lifestyle, your income, how you spend money, how you budget and how much house you’re looking for. But whatever you do, never spend more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage—otherwise, you’ll be house poor. And stay away from expensive FHA, VA and USDA loans that rip you off.
- How much down payment should I have? When deciding how much down payment to save, your ideal goal is at least 20% of the home price. Anything less and you’ll have to pay for private mortgage insurance (PMI). If you’re a first-time home buyer, a smaller down payment of 5–10% is okay too. But then you will have to pay PMI.
- 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 set a goal 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).
- Where can I put money for a down payment? Just like an emergency fund, you’ll want to put your down payment in a place that’s easy to access—but not too easy. Remember: A down payment is not an investment. So, stashing that cash in a money market savings account will get the job done. You won’t make tons on interest, but you won’t lose money either.
Again, let’s say you want to save $40,000 in 24 months to cover your down payment (plus closing costs and other moving expenses). Now that you’ve set your goal, it’s time to fast-track your savings.
Step 2: Tighten your spending (temporarily).
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 saving for a house:
- Take a break from the gym: $60 per month
- Save going out to eat for special occasions: $200 per month
- Trim your clothing budget: $100 per month
- Buy generic: $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 to trim your spending.
Step 3: Hold off on your retirement savings (temporarily).
If you’re already saving for retirement, this might feel really weird. After all, at Ramsey, we teach you to start investing 15% of your household income for retirement after you’re out of debt and have your full emergency fund in place.
But if you’re planning to buy a house in the near future, it’s okay to hold off on your retirement savings and put that money toward your down payment. Remember: You’re in charge of how gazelle intense you want to be. If that’s what you decide to do, that’s okay! It’s only temporary. Once you’re sipping coffee in your new breakfast nook, you can get right back to putting 15% toward your retirement goal. Just make sure this is only a quick detour (like a year or two)—not a five-year pause.
Think of it like this: If you’re currently investing $500 a month into 401(k)s and IRAs but you put that money toward your down payment savings instead, you could save around $12,000 in two years. That’s a big boost for your down payment!
Pro tip: Don’t borrow from or cash out your retirement accounts to speed up your down payment savings. Not only will you get hit with taxes and early withdrawal penalties, but you’ll also tank the long-term growth of your retirement savings—costing you hundreds of thousands of dollars at retirement. Yikes.
Step 4: Boost your income.
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 ideas:
- 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 as a second language. 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.
Now, you’re probably wondering: Is it worth it? (That’s like asking us if Dave Ramsey hates credit cards.) Yes—it’s absolutely worth it!
Let’s say you start a side hustle and put in 10 hours a week making $15 an hour. That’s an extra $120 per week—after taxes! Keep that up and you’ll have more than $12,480 for your down payment savings in just 24 months.
Step 5: Cut the extras and save even more.
It’s time to get tough and cut out some extra spending. Ouch. It might hurt, but keep your mind on your why—home sweet home. Here are a few ideas to get you started:
- Skip the summer vacay. This one is going to hurt, but in the long run, it’ll be worth it. Skip the fancy summer vacation, and throw that money in savings instead. You could probably pocket $2,000 from that alone.
- Sell some stuff. Do you have a lot of extra stuff collecting dust around your house? Sell. It. All. Take advantage of online sites like thredUP or Poshmark for gently used clothes, then use Facebook Marketplace or eBay for everything else.
- Have a garage sale. Is your neighborhood having a sale soon? A garage sale can bring in some extra dough like nobody’s business. Scoring $500 from a Saturday morning garage sale is a win in our book.
- Save all the money you earn from your annual raise or bonus. Planning to get a little Christmas bonus? What about a bonus for a job well done? No matter what that extra cash is for, you can tell the big-screen TV to wait. Stash your bonus money in savings instead. That could be an easy $1,500 bump.
If you do all four of those, you could save $4,000 or more! Worth it? Absolutely.
How to Save a $40,000 Down Payment in Two Years
Cut your expenses
Pause retirement contributions
Earn extra income from side hustle
Sell stuff/skip splurges
For more tips on how to save for a house, check out our Saving for a Down Payment guide. It’ll help you map out a plan, give you even more practical tips, and keep you on track to reaching your goal. That white picket fence doesn’t seem like such a faraway dream after all, does it?
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 housing-related 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.1 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 and title fees.
- Moving expenses: You can always save money on moving costs by asking friends for help. Otherwise, hiring movers can cost anywhere from $900 to $2,400 depending on how much stuff you’re moving and how far away you are from your new home. (If you're moving really far away, you could pay up to $7,000.)2 If you go that route, be sure to get quotes from local moving companies ahead of time to help with budgeting.
Keep in mind: 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 if it’s 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 First?
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, credit card debt and car loans.3 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 3–6 months of living expenses as a full emergency fund. Imagine coughing up the funds to cover an HVAC meltdown or roof leak on top of losing a job and still trying to pay your mortgage—no thanks! An emergency fund turns that crisis into an inconvenience you can handle.
Sure, it might feel like a bummer to hit pause on the excitement of saving for a home while you clean up debt and build up an emergency fund. But trust us, doing this will help you save for a house faster—and protect you from a lifetime of stress.
Get Advice From a Mortgage Expert
For professional advice on how your home down payment will impact your mortgage, talk to a home loan specialist. A good mortgage provider will help you understand your options and show you how to get an affordable mortgage you can pay off fast. Need help finding one of these experts? Check out our friends at Churchill Mortgage. They’ve earned the right to be called RamseyTrusted for sharing our high standards for excellent service.
Connect with a mortgage provider we trust!
Find an Agent Who’ll Help You Stick to Your Budget
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 working with an experienced real estate agent—one who has your best interests at heart—is key.
To find an agent who’s RamseyTrusted, try our Endorsed Local Providers (ELP) program. We only recommend the best in the business, and we’ll match you up for free. Don’t take a chance on your aunt’s neighbor’s cousin who barely got his license.
Find a top real estate agent near you!
Frequently Asked Questions
How Do I Budget for a House?
The first step to budgeting for a house is to know how much down payment you need. Ideally, you’ll want to save a down payment of at least 20%. For first-time home buyers, a smaller down payment like 5–10% is okay too—but then you’ll have to pay PMI. Whatever you do, never buy a house with a monthly payment that’s more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage (which has the overall lowest total cost). And stay away from expensive loans like FHA, VA and USDA.
After you’ve set your savings goal, here are some tips on how to save for a house: Pay off all your debt, tighten your spending, hold off on your retirement savings (temporarily), start a side job, and sell stuff you don’t need.
Let’s say you want to buy a $200,000 house. Your down payment savings goal is $40,000 (or 20% of the home price). To budget for this house in two years, you’d need to set aside $1,700 each month ($40,000 / 2 years / 12 months = $1,700).
Where Should I Stash My Down Payment?
You could stash your down payment in a simple money market savings account. You’re not going to make tons on interest, but you won’t lose money either. Keep in mind: Saving a down payment is not the same as investing for retirement. Saving a down payment should only take you a year or two—so you want to keep your savings in a place that’s easy for you to access.
When Should I Start Saving for a House?
As soon as you think you’re ready to buy a house, start saving for one! For reference: You’re only ready if you’re debt-free and have an emergency fund of 3–6 months of living expenses. It’ll probably take some intense saving over a period of time—we’re talking a year or two just to save for a down payment—so you’ll want to get started right away.
How Can I Save for a House Quickly?
If you want to save for a house fast, you need to be debt-free and have an emergency fund of 3–6 months of expenses saved. With your income freed from debt payments and an emergency fund to protect you from life’s unexpected surprises, you can save for a house much faster. Here are some other ideas to help you save money fast.
I Can’t Afford a House—What Do I Do?
Trying to buy a house when home prices keep going up can be frustrating. But with the right plan, you can do it! One big thing that holds people back from saving for a house is debt. Debt is dumb! So focus on cleaning up all your debt—and never go back. Then save up an emergency fund of 3–6 months of living expenses to protect yourself from life’s unexpected surprises. After that, you’ll be ready to save for a house.
To buy a house you can afford, never buy one with a monthly payment that’s more than 25% of your monthly take-home pay on a 15-year fixed-rate conventional loan (stay away from FHA and VA loans). Ideally, you want to save at least a 20% down payment. For first-time home buyers, a 5–10% down payment is okay too—as long as the extra PMI fee doesn’t jack up your monthly payment beyond the 25% rule.
After you’ve set a down payment goal, it’ll take time to save toward it. Give yourself a year or two of intense saving. Try these smart ways to save for a home down payment.
Once you have a strong down payment saved up, work with an experienced real estate agent who knows your area. The best agents will work hard to find you a house that fits your budget.