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How to Save a Down Payment for a House

Tired of renting? You’re not alone. The pressure to buy a home right now is real—especially in this crazy market. Plus, taking Fluffy up and down four flights of stairs—multiple times a day—is getting a bit old. Is it too much to ask for a patch of grass to call your own?

From the sounds of it, you might be ready to be a homeowner. There’s just one problem: You don’t have a down payment. And how are you supposed to save for a house when rent is so freaking expensive?

Listen, we get it. Saving up for a house is hard work (and might take a bit more time than you want it to), but it can be done!  

How to Save for a House

Saving up a down payment for a house is easier than you think—especially when you’re following a plan! But the key is knowing how much you need and, more importantly, how much you can actually afford.

Psst: This is where your zero-based budget comes in handy. But let’s not get off topic. If you’re wondering how much you should spend on a house, you want to think about the numbers 15 and 25. 

See how much house you can afford with our free mortgage calculator!

You want a 15-year fixed-rate mortgage that’s no more than 25% of your monthly take-home pay (including principal, interest, property taxes, homeowner’s insurance, private mortgage insurance and even homeowners association fees).

And here’s why: A 15-year fixed-rate conventional loan is the overall lowest cost mortgage—it saves you tens of thousands (even hundreds of thousands) of dollars in interest fees compared to other types of mortgages.

Also, the reason your mortgage payment should never be more than 25% of your monthly take-home pay is because you’ll have plenty of breathing room in your budget to tackle other financial goals—and keeps your house from owning you.

5 Steps to Saving for a Down Payment

Now that you know the type of mortgage you need, it’s time to start saving for your future dream house. It may sound intimidating to save so much money. But we promise—all you need is a plan. Ready? Let’s get started:  

Step 1: Create a Clear Savings Goal

The best way to save for a down payment is to know the exact dollar amount you actually need. So, what’s a good down payment? In a perfect world, you could walk up to the front door, hand the owner a fistful of cash, and pay for it outright. But that’s not exactly realistic (for everyone).

So if you’re in the majority of the population who can’t buy a house in cash, you should start by asking yourself these four 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. Like we said earlier, the goal is to spend no more than 25% of your monthly take-home pay. And that’s going to look different for everyone.

  • How much should I save for a down payment on a house?

We recommend a down payment of 20%. This gets you out of paying for something called private mortgage insurance (PMI). PMI is an extra fee added to your mortgage to protect your lender in case you stop making payments.

Can’t swing 20%? That’s okay. Just don’t go below 10%—otherwise, you’ll be stuck paying extra in interest and fees, putting you further in debt for decades!

  • 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’re not going to make tons on interest, but you won’t lose money either.

So, let’s say you have 24 months before you want to buy a home, and you decide to save $40,000 to cover your down payment (plus closing costs and other moving expenses). Now that you’ve got your goal set up, it’s time to fast-track your savings!

Step 2: Streamline Your Budget

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 you can save!

Step 3: Press Pause (Temporarily) on Retirement Savings

If you’re already saving for retirement, this might feel really weird. After all, at Ramsey, we normally recommend you start investing 15% of your household income for retirement after getting your full emergency fund in place.

But if you’re planning on buying a house in the near future, it’s okay if you want to hold off on your retirement savings and instead put those funds 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 that 15% toward your retirement goal. Just make sure this is only a one-to-two-year detour, 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 instead put that toward your down payment savings, 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 in order to save up for a down payment. Not only will you get hit with taxes and early withdrawal penalties, but you’ll damage 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 to speakers of other languages. If you have advanced degrees, you could earn even more.
  • Love pets? Let your friends and co-workers 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 16 hours a week making $12 an hour. That’s an extra $153.60 per week—after taxes! Keep that up and you’ll have more than $15,974 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 pocket $2,000 from that alone.1
  • 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, Poshmark or even Facebook Marketplace for gently used clothes and eBay for the rest.

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 that big-screen TV to wait. Stash your bonus money in savings instead. That could be an easy $1,500 bump!

If you do all three of those, you’ll save an extra $4,000! Worth it? Absolutely.

How to Save a 40,000 Down Payment in Two Years

Cut your expenses

$15,000

Pause retirement contributions

$12,000

Earn extra income from side hustle

$12,400

Sell stuff / skip splurges

$4,000

Total savings

$43,400

For more tips on saving for a new home, check out our Saving for a Down Payment Guide. It will 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 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.2 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 $240 to $2,000 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 $8,000!)3 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?

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 (51%), credit card debt (45%) and car loans (38%).4 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 three to six months’ worth of your expenses as a full emergency fund. Last year, homeowners had to spend $1,640 on emergency home projects.5 Imagine coughing up the cost of that emergency on top of losing a job and still trying to pay your mortgage—no thanks! An emergency fund saves you from all that.

Sure, it might feel like a bummer to hit pause on the excitement of saving for a home and replace it with the dullness of paying off debt and building up an emergency fund. But trust us, doing this will help you save your down payment faster—and protect you from a lifetime of stress.

Make the Most of Your Down Payment

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 picking an experienced real estate pro—who has your best interests at heart—is key.

We’ll match you up with the perfect teammate through our Endorsed Local Provider program. We’ve got some of the best in the business . . . and we’ll match you up for free. Don’t take a chance your aunt’s neighbor’s cousin who barely got his license. Because when it comes to making one of the biggest financial investments in life (like buying a home), you don’t want to work with just anyone. You want to work with a pro. Find your local real estate agent here.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

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