12 ways to save for a down payment

Mortgage and Lending with Horizon Lending Services, LLC NMLS # 198754

One of the hardest parts of buying a new home is having the up-front cash to put down on your purchase. While certain loan programs, like the one offered by the FHA, allow you to buy a home with just 3% down (and some special programs like VA home loans allowing as little as $0 down), saving your downpayment can sometimes be easier than for others. But, no matter how large of a down payment you need to save, finding a way to pinch your pennies isn't always that simple.


First, decide how much money you need. Most conventional home loans require 10% down of the home's purchase price, so if you want to buy a $250,000 home, that's $25,000 that you have to save up. Next, determine when your deadline is. If you want to buy a home in the next 3 years (36 months), for instance, you need to be putting away $695/month from here forward. But, you might want to stick away a bit extra.


This "extra" money won't necessarily cover additional expenses, but it will help you account for the inevitable rise in home prices and interest rates as the time goes by. House prices probably won't be exactly the same three years from now, so by bumping your savings up to just $700 or $750 a month, you'll end up with a few hundred to couple thousand dollars to help somewhat cushion the price increase.


Once you have set a goal, make a plan to reach it.


#1 Cut Back On Your Spending

Perhaps the most obvious tip of all, this is also the absolute number one most essential tip you have to put into place if you want to be able to save up the money you need before your hair turns gray! Look at your current spending habits and make a budget for each category. Expenses that don't fluctuate each month, like your current rent, can't be changed, but you might be able to save on some other bills by using less water or letting the fresh air in this summer instead of cranking the A/C up to full blast.


Some more effective ways to cut back on your spending is to simply look at your grocery and entertainment budgets. You can eat for cheap if you stop going out and start looking for deals at your local store. Rather than making last minute runs to the store when you're craving food, learn about meal prep and only go shopping once a week or a couple times a month. This will help you stay on top of what you're buying and how much you're spending.


When it comes to entertainment expenses, little things can definitely add up fast. Instead of going to the movies for $10, rent one for $2 or just borrow one from your friends.


#2 Open Up A High-Yield Savings Account

Over the next three years, you might not get rich off interest, but since you're going to be stockpiling a large sum of money away for your downpayment, opening up a high-yield savings account will be worthwhile. Most high-yield savings accounts today top out around 1.5%. You can get a slightly better interest rate if you have $5k or $10k to deposit in already (most high-yield accounts have a minimum balance in order to keep getting their advertised interest rate).


If you already have $5000 and you are looking to save $700/month for the next 36 months, you'd put away $30,200 by the time your goal date rolls around. But, if you put this into a savings account at 1.5% APR, you'll end up with $30,989.13. While that extra $790 doesn't seem like a huge deal right now, it's better than losing money, right? If your money is going to be sitting around "in storage", you might as well get some use out of it.


#3 Track Your Progress

Bring the power of technology to your savings plan by using an app to track your progress towards your goal. Apps like FineAnts will allow you to set a simple financial goal and add deposits to it as you continue to put money away towards reaching the hefty goal you have set for yourself. If you're more of a visual person and you want it in front of you all the time, try taking a glass jar and putting a dollar in for every $100 you save. By the time you reach your goal, you'll also have an extra $300 in the jar! If that sounds like too much for your budget, try coins instead.


#4 Strategically Pay Down Debt

If you currently have a loan or credit card debt of some sort, get strategic about your repayment plan. Begin by paying down your high-interest debt first and slowly working to pay down your lower-interest debt. When possible, consolidate a high-interest credit card with a lower-interest credit card. When transferring balances, take advantage of introductory no-interest/low-interest offers to pay back a large sum of your debt without any interest!


#5 Start a Side Hustle

Whether it's a part-time job or some service you choose to offer online, starting a side hustle can bring in a few hundred extra dollars each month to pile onto your savings. Look into virtual services you can offer at Fiverr.com or start teaching and making money on sites like SkillShare.com and Udemy.com.


#6 Reduce Your 401k Contributions

Consider reducing how much you are contributing to your 401k and instead putting that difference into your downpayment savings account. After you reach your goal, increase your contribution percentage again. Keep in mind that your retirement assets will likely be considered when your lender looks at how much non-liquid money you have in case things go awry, so don't consider your contributions a total loss to the home buying venture.


#7 Move Somewhere Cheap

Is your rent currently eating up a large portion of your budget? Consider moving to a smaller and cheaper space so that you can save up for the home of your dreams.


#8 Skip The Gifts

When Christmas time rolls around or your birthday is back on the calendar, consider sharing your home down payment savings venture with your friends and family and let them know that you'd appreciate the flexible cash in place of a gift. Just make sure to remind them you know it's not about the money!


#9 Book a Staycation

While saving up for a downpayment may be putting your vacation on hold, that doesn't mean you can't keep enjoying life in the meantime. Book a staycation instead by investing in something that will bring you fun again and again. Perhaps that new flat screen you have been eyeing would be perfect, or try something simpler (and free) like a hike or camping trip through the local national forest.


#10 Sell Your Stuff

Have clutter that could get you a few extra bucks? This will help your moving goal in two ways: one by reducing the amount of junk you have to sort through later and two by helping add to your savings account. You can have an old-fashioned front yard sale, or list some items on eBay. You can also look through online "thrift shops" that will buy back gently used clothing.


#11 Forget Your Raise

If you have recently gotten a raise, you know that you don't really need that money. If you were living without getting behind on bills before that extra money came along, you can continue to do so. Instead, put that raise right into your savings account! In fact, most employers give you the option to split up your direct deposit anyway, so you won't even be tempted.


#12 Know Your Options

Does your new home now seem far off? Don't get discouraged. There are down payment assistance programs out there that can help you move out sooner rather than later. Your state and local housing agencies offer down payment assistance programs, but they aren't for low-income individuals. These programs are designed for working people who don't have the means to save up for a downpayment.


You can also find downpayment assistance grants (no charge, no strings) and downpayment assistance loans (that must be paid back).


Learn more about the FHA downpayment program offered by Horizon Lending Services.


Not sure which home loan is right for you? We’ll work with you to identify your best options.


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Barbara Todaro
RE/MAX Executive Realty - Franklin, MA
"Franklin MA Homes"

Good morning, Pat & Sharon Mistowski saving for a down payment is a very difficult task....but you've listed many good steps to take...  I like the "side hustle".... could be quick money!

Apr 14, 2018 07:16 AM #1
Sham Reddy
H E R Realty, Dayton, OH - Dayton, OH

Best tip of it all... Cut spending

Perhaps the most obvious tip of all, this is also the absolute number one most essential tip you have to put into place if you want to be able to save up the money you need before your hair turns gray! Look at your current spending habits and make a budget for each category. Expenses that don't fluctuate each month, like your current rent, can't be changed, but you might be able to save on some other bills by using less water or letting the fresh air in this summer instead of cranking the A/C up to full blast.

Apr 14, 2018 07:23 AM #2
William Feela
Realtor, Whispering Pines Realty 651-674-5999 No.

Cut down spending...I had a couple that saved over $700 a month when I cut theri spending.   6 months and they had money enough to buy the home they wanted with  a conventional mortgage with lower fees than a FHA loan

Apr 14, 2018 09:10 AM #3
Debe Maxwell, CRS
www.AtHomesCharlotte.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

Cutting spending should be of the highest priority for everyone. Pay with cash instead of using credit cards. It's too easy to just swipe a card but if you see the money physically leave your buillfold then you're more inclined to reduce spending. I disagree on reducing 401k contributions especially if your company has a matching program. 

Apr 14, 2018 02:46 PM #4
Golden1 Agents
San Mateo, CA

Thanks for sharing! useful tips. 

Apr 14, 2018 06:49 PM #5
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Pat & Sharon Mistowski

Horizon Lending Services, LLC
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