6 Easy Tips to Save for a Home Down Payment
Saving up that 20% may seem daunting. Here are some tips to make the process much easier.
For most Americans, buying a home is a key component of building wealth and achieving financial freedom. But it’s not an easy process, especially when it comes to saving for a home down payment.
The problem is most lenders require a sizeable down payment before approving you for a mortgage. And if you don’t have 20% (which is often tens of thousands of dollars), then you’re going to get stuck with additional costs.
Fortunately, there are ways to save for a home down payment that are within your grasp. Let’s walk through five of them.
How Much Do I Need to Save for a Down Payment?
For conventional mortgages, most lenders prefer that you put 20% of the home’s purchase price down. There are some upsides to doing this:
- You can take out a smaller loan, reducing your monthly payments
- You won’t have to pay private mortgage insurance (PMI) on top of your monthly payment
- You may qualify for a lower interest rate
However, as real estate values continue to climb, that 20% just keeps getting more and more expensive. You may find it a challenge to meet that goal.
5 Tips for Saving a Down Payment
If you’re a first-time home buyer and want to hit that 20% mark, you have to be intentional with your finances, and even make some sacrifices. Let’s walk through some steps you can take to make that happen.
1. Calculate how much house you can afford.
The best way to keep the down payment reasonable is to buy a house that is within your means. You shouldn’t be spending more than 25-30% of your monthly income on household expenses—this includes mortgage, taxes, utilities, and insurance.
2. Automate your savings.
A lot of people don’t meet their savings goals because of human error (read: they go and spend the money because it’s more fun!). That’s why you should leverage technology to your advantage. Set up an auto-deposit that transfers money out of your checking account every payday.
Note: Transferring that money into a high-yield savings account or even a mutual fund can help you reach your goals much faster.
3. Cut costs.
If home ownership is important enough to you, you should be willing to make some sacrifices to get there:
- Eat at home instead of restaurants
- Cut back on subscriptions
- Buy less expensive clothes
- Switch to a cheaper phone plan
- Take a staycation
4. Add additional revenue streams.
Cutting costs is only one end of the spectrum. On the other hand, you could increase your income and put that extra money toward your down payment:
- Ask for a raise or take a higher-paying job
- Sublet your apartment
- Take on a side hustle like flipping collectibles or driving Uber
- Start a side business and take on freelance clients
5. See if you qualify for a first-time home buyer program.
If you’re a first-time home buyer, then you may qualify for a first-time homebuyer program. Consider Fannie Fannie Mae and Freddie Mac’s down payment assistance programs, VA loans and grants, USDA loans, and FHA loans. These can help you reduce your down payment by potentially thousands of dollars.
Although saving for a down payment is an important financial goal, you don’t want to put all your eggs in one basket. (Being “house-poor” is no joke!)
Instead, make sure you’re working the following goals in tandem:
- Paying off all your debts, including credit cards and student loans
- Saving an emergency fund of 3-6 months expenses
- Investing in your 401(k) and other retirement accounts
If you think you may need to put your 401(k) savings on hold to save for a home down payment, consider working with Matchly. Matchly can help you keep claiming your employer match without sacrificing your homeownership goals.
Use the calculator below to see how much 401(k) match you can get with Matchly.
How Matchly Can Help
Matchly allows you to get all of your 401(k) employer match, without taking a cut out of your paycheck
Get your full 401(k) match
Get up to thousands of additional dollars every year from your employer starting with your next paycheck
Enjoy your full paycheck
Matchly finances your 401(k) contributions for you, so you don’t have to take a cut out of your paycheck to get your match.