No matter where you are in your home-buying journey, if you haven’t already done so, you’ll have to save up for a down payment – perhaps fast. And it can be one of the most challenging parts of the process. Still, saving up for a home is possible, even if you do not have a high-paying job. It is all about self-discipline.
Imagine it’s December 2025, and you finally have enough money saved for a down payment on your dream home. This is certainly possible! In this article, you’ll discover 14 tips to create a down payment fund so you can own your home as quickly as possible.
Is a bigger down payment better?
So far, this article covers how to save for a down payment fast. But, is it possible that you save too much money? Overspending on a down payment can be problematic as well.
Overpaying on a down payment or (saving too much for a down payment) can leave a buyer vulnerable to house-poor circumstances. Buyers can be left with little money for other costs, i.e., closing costs.
The math is simple: having a higher down payment reduces monthly payments by lowering the loan size. It also eliminates the need for private mortgage insurance.
A buyer should always make the highest down payment that they can effectively include in the monthly budget. For most people, the best choice is to choose a low down payment mortgage.
Give your income a boost
You may find you do not have that much money left at the end of each month, and making so little progress on such a large purchase can feel discouraging. That’s why you might want to look for other ways of increasing your income and making some extra income. You might look for a job that pays better than your current one. There are ways to improve your career prospects, but one of the best ways is to get a degree in a relevant field. That said, avoid taking out a student loan.
Make expenses more affordable
You can find online scholarships to make the expense more affordable. For example, you can find scholarships for college students to cover some or all of the cost of your education. Or, you could even add a small side hustle to increase your earnings. Consider looking into reselling items online, taking on freelance work, or doing website usability testing. Even getting a weekend job can put you one step closer to making homeownership a reality.
Review the budget
The amount you need to save will depend on your home budget. Look at homes in the area you want to live in to determine what the average house sells for. Comparing prices will help you determine your budget. You will then want to look at mortgage options to determine the down payment that you’ll need. With some plans, you only need to put about 3 to 6 percent as a down payment. Still, don’t forget closing costs, which can also be around 3 to 6 percent of the total purchase price. You may want to put aside several thousand dollars more than you think you need to cover any other fees you might incur. The lender may charge fees, and a Relator may have their own fee structure.
Start setting aside money for your down payment fund
Once you have a number, you can start setting aside money each month and placing it in your down payment fund to get there. Saving for a home is a process that can take months or years for many people. If you feel you need around $15,000 and can scrounge up $800 a month, it may take you a year and a half to come up with the sum.
Because purchasing a home may be more of a long-term goal for some people, you may not want the funds sitting in a checking account where they will earn little to no interest. Instead, consider putting them in a savings account that offers a higher yield. Keeping the savings separate can prevent you from spending them on something else.
Reduce spending you don’t need
Consider reducing excess spending to build up your savings even more. Even though it might not be that fun to cut your next trip to Italy, you can meet your goals if you do so. You may want to reduce spending on vacations, entertainment, dining out, and clothing. Look for fun, creative ways to cut back. Even though these small ways might not seem like a lot, you might be surprised at how quickly the savings can add up.
Pay off high interest debt
If you have debt, especially high-interest debt, you may be less likely to be able to save for your home. Having debt with a high-interest rate can also destroy the rest of your finances. That’s why getting out should be your top financial priority. When you stop hiding from debt and get out from under it, you are more likely to build up your credit, which is an essential factor in acquiring a home. When you have a lower debt-to-income ratio, you might be able to get better terms or a bigger mortgage.
Automate your savings
Saving money can be difficult, but with a bit of automation, it can become much more manageable. Automating your savings means setting up a system where a fixed amount of money is regularly transferred from your checking account to your savings account. This can be done through your bank’s online banking system or by using a savings app. Automating your savings can help you reach your financial goals and avoid spending impulsively.
Rent out your spare room or parking space
As the cost of living continues to rise, more and more people are looking for ways to make extra money. If you have an extra room in your house or a parking space that you don’t use, you can rent it out to someone who needs it. Several websites and apps make it easy to find tenants, and the money you earn can be a great way to help pay your bills.
Ask for help
One of the best ways to save for a down payment on a house is to ask for help. This could mean reaching out to family and friends for support or looking into government assistance programs. There are also a variety of private loan and grant programs available that can make saving for a home more manageable. By taking advantage of all the available options, you can reach your goal of homeownership faster.
Consider downsizing
When looking to buy a house, one of the most significant considerations is how much money you have saved. While there are many ways to save for a house, downsizing may be the fastest way to get you to your goal.
Downsizing can help you reduce costs on your mortgage and other associated costs.
Here are some tips on how to downsize successfully:
- Evaluate your needs and wants. Make a list of what you need in a house and what you would like but don’t necessarily need. This will help you focus your search and avoid getting sidetracked by features that aren’t important to you.
- Consider your location options. You may want to consider living in a smaller town or city where housing prices are more affordable.
- Consider your lifestyle. Ask yourself, “What do I need?”
Park the savings somewhere you can earn more money
It can be tough to save for a down payment, especially when you have other priorities, like paying off debt or building your emergency fund. But saving for a down payment is vital if you’re looking to buy a house shortly. So, where should you park your savings? In a high-yield savings account or a money market account. There, your down payment funds can earn more money than you would in a traditional savings account.
High yield savings accounts offer competitive interest rates, typically much higher than what you would get from a standard bank account. This can help your money grow faster, so you can reach your down payment goal sooner. And many of these accounts also come with no monthly fees and minimum balance requirements.
So if you’re ready to start saving for a house, check out some of the best high-yield savings accounts available today.
Move back with mom and dad
According to a study by the University of Cambridge, young adults who live with their parents are more likely to save extra cash and be able to afford a down payment on a home. The study also showed that those young adults were less likely to have debt and were more likely to have stable jobs. For those reasons, moving back in with your parents is often seen as the best way to save money for a house. Of course, there are some drawbacks to living with your parents again. You may feel like you’re living in a fishbowl or not doing enough to contribute to the household. But if you can overcome those hurdles, living with mom and dad can be a great way to save money for a house.
FHA loans
It can be tough coming up with down payment savings for a house, but there are ways to make it a little easier. FHA loans are mortgages obtained with the help of the FHA. With a small down payment, buyers can purchase a home. An FHA loan makes it easier for people to qualify for a mortgage, but they’re not for everybody.
With an FHA loan, you only need to put down 3.5% of the home’s purchase price. You can also use gift money from family or friends to help cover the down payment. Another advantage of using this type of loan is that you can qualify for them even if you have a low credit score.
The borrower’s total debt, including the mortgage payment and all other monthly debt such as credit card payments, auto loans, student loans, etc., must be less than 43%, otherwise known as the back-end ratio.
FHA loan lending guidelines
- FICO score of 500 – 579 with 10 percent down. Or a FICO score of 580 or higher with 3.5 percent down.
- Verifiable employment history for the last two years.
- Income is verifiable through pay stubs, federal tax returns, and bank statements.
- A loan is used for a primary residence.
- The property is appraised by an FHA-approved appraiser and meets HUD property guidelines.
- Your front-end debt ratio (monthly mortgage payments) should not exceed 31 percent of your gross monthly income. Lenders may allow a ratio of up to 40 percent in some cases.
- Your back-end debt ratio (mortgage, plus all monthly debt payments) should not exceed 43 percent of your gross monthly income. Lenders may allow a ratio of up to 50 percent in some cases.
- If you experienced bankruptcy, you must wait 12 months to two years to apply. If you experience foreclosure, you’ll have to wait three years. Lenders may make exceptions on waiting periods for borrowers with extenuating circumstances.
VA loans
A VA loan is a mortgage loan available through a program established by the United States Department of Veterans Affairs, says Patterson. The VA sets the qualifying standards and dictates the terms of the mortgages offered. In exchange, the government guarantees a portion of the loan but doesn’t provide the financing. Instead, private lenders provide VA home loans, such as banks and mortgage companies.
These loans are fixed-interest rate loans that are competitive with conventional mortgage rates. Most VA loans are assumable. But, anyone buying a home who wants to assume a VA loan must prove their creditworthiness. Indeed, the customer must be able and willing to make the payments on the loan.
If you are a veteran who permits your VA loan to be assumed, you can’t apply for another VA loan until the first loan gets paid off. VA Loans are available to veterans, reservists, and military or National Guard members and come with great benefits, including low-interest rates and no required down payment. They also forgo monthly mortgage insurance premiums, which can equal significant savings.
VA loan requirements
- You have served 90 consecutive days of active service during wartime
- Or, You have served 181 days of active service during peacetime, OR
- You have 6 years of service in the National Guard or Reserves, OR
- You’re the spouse of a service member who died in the line of duty or due to a service-related disability.
USDA loan programs
Another option buyers have are USDA loans, which the U.S. Department of Agriculture offers to help spur ownership in rural towns.
To qualify for a USDA loan, buyers can only purchase homes in designated rural areas (although some suburban areas apply). Prospective home buyers should first verify the home’s address for eligibility. Population criteria for a rural area dictate that the area cannot have more than 10,000 people. However, the USDA will approve loans for areas with fewer than 20,000 people that have a “serious lack of mortgage credit for low- and moderate-income families.” There are exceptions for non-rural areas with fewer than 35,000 people that can be described as “rural in character” and face the same lack of mortgage credit.
If approved, the buyer can receive a loan with zero down payment (meaning you won’t need to dip into your retirement savings or money market accounts to buy the home). However, private mortgage insurance fees will apply for the life of the mortgage. And in turn, that means a higher monthly mortgage payment.
Get the best rates
Consumers who enter into a conventional loan, i.e., with a 20 percent or more down payment, will lock in the lowest possible payments for the life of their loan.
Down payment sizes vary significantly among individuals. Deciding how much to put down for a mortgage comes down to budgeting.
Conclusion
You could be like most people and spend years setting aside enough money in a down payment savings account for a home. Worse yet, you might even end up chasing a market that keeps rising in value. Or, by using some (or all) of the ways listed in this article, you could do what fewer people are doing and get that down payment in a fraction of the time.
