Saving Up for Your First Home

Ways to Save for a Down Payment

1. Work out How Much You'll Need

Before you start saving, it pays to have a specific goal to work toward. Most lenders require between 3% and 20% of a home's purchase price as a down payment, depending on the type of loan. Research average home prices in the area where you want to buy to get an idea of the amount you'll need. For instance, if a starter home in your area costs around $200,000, a 10% down payment would be $20,000. Having a clear goal can help keep you motivated and on track as you save.

2. Cut Unnecessary Costs and Use Coupons for Necessities

Take a look at your spending habits and find areas where you can cut back. Cutting non-essential expenses, like dining out, subscriptions you barely use, or impulse buys, can add up faster than you might think. Use coupons and online discount codes to spend less on essentials like groceries and household items. Small changes in your spending habits can help you set aside more money for your future home little by little.

3. Take a Break From Saving for Retirement

Saving for retirement is key, but you might want to consider pausing contributions to your retirement account temporarily while you focus on saving for your down payment. This can help you redirect some extra cash toward your home fund and reach your goal faster. However, don't forget to resume your contributions as soon as possible once you've saved up what you need for a house, especially if you can take advantage of employer matching contributions.

4. Start a Second Job or Side Hustle

If you're serious about reaching your goal faster, picking up a part-time job or a side hustle can provide an extra source of income to boost your savings. From freelance work to driving for a ride-sharing service, many side gigs offer flexibility. While this may require some extra time and effort, the extra earnings can significantly cut down the time it takes to save for your down payment.

5. Sell What You Don't Need

Decluttering your living space can be a rewarding way to earn some extra cash. Consider selling items you no longer use or need, like electronics, clothing, or furniture. You can use online marketplaces, consignment stores, or local buy/sell/trade groups to find buyers. Not only does this help you save more money, but it also helps to reduce the amount of things you'll need to move when you finally buy your home.

6. Stash Your Windfalls

Any unexpected funds, like tax refunds, bonuses, pay raises, gifts, or inheritances, should go directly into your down payment fund. These windfalls may not be predictable, but setting aside each one as it comes along can accelerate your progress. Try to get into the habit of saving at least a portion of any financial bonus, no matter how small, to keep your momentum going.

Other Expenses to Plan For

While saving for a down payment is the biggest priority and the largest expense you'll have when buying a home, don't forget to account for the other costs you'll encounter. Closing costs, typically 2% to 5% of the purchase price, cover expenses like loan fees, title insurance, and inspections. You'll also want to have money on hand for moving expenses, initial home repairs, and basic furnishings along with an emergency fund for unplanned repairs once you're a homeowner. Planning for these costs early will make your transition into homeownership smoother.

What if You Have plenty of Debt?

If you're carrying plenty of debt, you don't necessarily need to pay it all off before saving for a home, but prioritizing can help. First, check your debt-to-income ratio (DTI), which lenders use to assess financial health: A lower DTI can make it easier to qualify for a mortgage. Then, focus on paying down high-interest debt, like credit cards, since it can eat into your budget fast. Lower-interest debts (like student loans) may be manageable alongside saving for a home.