How To Save For A Down Payment...


Seven steps to help you save for that down payment.

Saving that down payment to purchase a home can be daunting—but it’s also doable. Follow these seven steps to achieve your dream of home ownership!

Determine what you can afford

Generally speaking, you should not pay more than 28 percent of your gross income for housing costs, which includes the loan payment, property tax, home owner’s insurance and estimated utility costs.

Determine how much you’ll need.

This varies depending on the type of loan you receive. The Federal Housing Administration (FHA) provides mortgage loans to people with insufficient funds or less than stellar credit, and requires only a 3.5 percent down payment. (Find an FHA lender on the U.S. Department of Housing and Urban Development’s website.)

If you want a traditional loan, you’ll need between a 5 percent and 20 percent down payment, depending on the lender and your circumstances. The advantage of a larger down payment is, of course, lower monthly payments. And if you put down the full 20 percent, you won’t have to pay mortgage insurance.

A number of online calculators can help you determine how much you’ll need for a down payment—and your resulting monthly payment. (Check out this calculator from Zillow.)

Set a timeline and a budget.

Now that you know how much you need to save, you can set a timeline and budget for achieving that number. First, reassess your budget (if you don’t have one, now’s the time to create a budget) and find expenses you can trim or cut. Now you can determine how much you can save each month—and how long it will take you to achieve your ultimate goal!

Cut costs.

Of course, the more you can reduce how much you spend each month, the more you can save for your down payment—and the faster you’ll be able to do so. Here are some ideas to put a few extra bucks into your bank account:

  • Cut your cable. The average cable bill is $75 a month, and rises 5 percent a year! There are a number of cheaper alternatives to get your TV fix. (And some are even free!)
  • Change your health plan. There are a number of ways you can make your health insurance more affordable. Shop around for less expensive plans. If you’re healthy, consider a high-deductible plan. Staying healthy and quitting smoking can also help reduce your trips to the doctor—and your out-of-pocket expenses.
  • Review your cell phone plan. Do you really need that unlimited data plan? Are you paying for minutes that you never use? Take a closer look at your cell phone plan to see if you’re paying too much for what you need. Or, upload your bill to Validas and have them figure it out for you. You can get a preview of their analysis for free, or get the full report for $5.
  • Save on your car insurance. You could be paying too much. Shop around and review your policy. Do you have an older car? You might not need collision and comprehensive coverage. Here are some other ways to save on your car insurance.
  • Little savings add up. Take your lunch to work. Skip your morning macchiato. Only buy clothes that don’t require dry cleaning. You may only be savings a few dollars here and there, but those savings can add up quickly!

Start saving.


Open a separate savings account that is dedicated solely to saving for your down payment. This will help keep you from inadvertently spending your down payment savings and will enable you to watch your progress. Better yet, set up an automatic deposit into your account so you can be sure that funds are added regularly.

Get a gift.

Still can’t make that down payment? Enlist the help of a relative if you can. They can “gift” you up to $13,000 without tax implications to either party. Be aware, however, that the rules for using down payments that include gifts can vary depending on your lender and your loan. Be sure to talk with your financial or tax advisor before going this route.

Start looking!

Now comes the fun part—looking for your new home! Research the neighborhoods you want to live in to determine the prices and types of homes you can afford. You can expand your search if you need to in order to get the home you want, but be careful not to expand the price you’re willing to pay. Only buy what you can afford today.

This article contains general information. Individual financial situations are unique; please, consult your financial advisor or tax attorney before utilizing any of the information contained in this article.

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Source:,, ABC News, Zillow, MSN Money
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