40% of Americans say saving for a down payment is the biggest hurdle keeping them from owning a home. Whether you're a first-time buyer or someone looking to upgrade, finding creative and effective ways to save can help you reach your goal faster. From side hustles to down payment assistance programs, let’s look at how you can fast track your progress to homeownership.
Set a clear savings goal
Goals are easier to achieve when they are specific. Rather than set a goal to save for a down payment, make your goal specific like, “I am going to save $30,000 by X date”. Calculate how much you need by using a house downpayment calculator. This will help you determine how much you need to save based on your potential home’s purchase price and the average down payment percentage.
In the U.S., the average downpayment is around
8% for first-time buyers, but depending on the type of loan you get, you may need more or less. Some conventional loans require up to 20%. Having a clear savings goal can help you make a plan and evaluate your progress along the way.
Research down payment assistance programs
Many first-time homebuyers qualify for down payment assistance grants and programs. These programs, often funded by federal or state governments, provide either grants or low-interest loans to help with the downpayment on a house.
FHA Loans are backed by the Federal Housing Administration. These loans allow for down payments as low as 3.5%. If you are a veteran or active-duty service member, you can qualify for VA loans offered by the U.S. Department of Veterans Affairs. These loans have zero down payment requirements. For those looking to purchase a home in rural areas, USDA loans from the U.S. Department of Agriculture offers low-interest loans with no down payment required.
Research local home buyer programs to see if you qualify for any specific down payment assistance grants in your local community.
Start a side hustle
A
side hustle is a great way to save extra money without cutting into your regular paycheck. If you’re unsure what you could do as a side gig, consider turning your hobbies or skills into a source of income. For instance, you could start freelance writing, baking, or tutoring. Part-time gigs like ridesharing with Uber, food delivery with DoorDash or personal shopping with Instacart, are great ways to make extra cash during odd hours. Don’t forget to look in your closets and garage for unwanted items you could sell. Use sites like eBay or Facebook Marketplace to sell items you're no longer using.
Choose the right savings account
While you’re stashing away money for your down payment, make sure it’s sitting in the right type of account.
High-yield savings accounts, certificates of deposit (CDs), or even a Roth IRA can offer much higher interest rates than traditional savings accounts—helping your down payment savings grow faster without you lifting a finger.
Automating monthly transfers from your checking to your savings account will ensure you stick to your savings goals. This method helps you avoid the temptation of spending extra cash that could go toward your down payment. Out of sight, out of mind!
Take a hard look at your spending
Even for those who feel like they live frugally, if you’re aggressively saving for a home, you might need to take a good look at how you’re spending your money. Are you still going out to eat a few nights a week? How many streaming subscriptions do you have? Cutting out unnecessary expenses can free up more money for your down payment fund. Even making small changes can have a big impact, when compounded.
Use gifted funds
In some cases, family members may be willing to help you with your down payment through gifted funds. These gifts are not $100 for a birthday. These types of gifts are generally equal to a significant portion of your monthly income. Mortgage lenders typically require a letter from the family member stating that the gift is not a loan and doesn’t need to be repaid. However, make sure you understand the maximum amount that can be gifted based on your loan type.
Take advantage of windfalls
Any size of windfall helps—tax refunds, work bonuses, commission or rebate checks—all of it can give your savings a significant boost. If you come into any unexpected money, put it directly to your down payment fund.
Refinance or pay off debt
If you're carrying around high-interest debt every month, like credit card balances or student loans, consider refinancing to lower your interest rates. Use debt repayment methods like the
debt snowball or
debt avalanche to quickly pay down your debt. The money you save each month on interest, can be put toward saving for your down payment.
Save on housing costs
Housing is the top expense for American households. If at all possible, reduce your current housing expenses to save more aggressively for your down payment. Consider downsizing to a smaller apartment or moving in with a family member temporarily. This would allow you to drastically cut your housing costs and dump all that extra money into your down payment fund.
If moving doesn’t make sense, you could get a roommate or rent out a spare bedroom to bring down your housing expenses.
Gamify your process
Gamification is a great way to infuse fun into an otherwise boring task. Saving money doesn’t always feel fun, even though the reward—-buying a house—is. There are multiple apps that streamline this process for you. You get rewarded when you save certain amounts of money or hit specific milestones. If you prefer an old-school method, you can make a savings chart out of posterboard and color in your progress as you go. The more fun you make the process, the more likely you are to stick with it.
The bottom line
Saving for a down payment on a house doesn’t have to be daunting. Whether you need $10,000 or $100,000, these creative ways to save can help you pull together enough money for your first home. Consistent effort and a willingness to be creative will help you reach homeownership faster.
