How To Save For a Down Payment: A Step-by-Step Plan

The average home price in America in 2023 is over $416,000. Yikes! And rising interest rates haven’t helped affordability either. Saving enough money to buy a house can seem really daunting – especially when everyone says you need a 20% down payment. That’s a massive chunk of change!

For most folks, a home will be the biggest and most expensive acquisition of their lives. So, it’s no doubt that saving for this estimable purchase is not for the faint of heart.

That being said, it’s not impossible. Even if your finances are in a messy place now, that doesn’t mean you can’t turn things around and become a homeowner. In fact, if you speak to your parents or grandparents about their first home purchase, they’ll likely tell you it was a tough time back when they purchased too. It takes a lot of scrimping and saving to buy a house, but rest assured it can be done.

In this article we’ll walk through a step-by-step guide for how to save for a down payment and prepare to buy a house. Following these steps will put you on the well-trod American path to home ownership.

1. Research Options and Set a Goal

You may already have some specific housing criteria in mind. But sometimes it can be helpful to start right at the beginning and ask yourself some of the basic questions about what type of house you want, where you want to settle down, and how much you can realistically afford.

Here are some initial things to consider when planning for a house purchase:

Where are you going to live?

(geographically & urban/suburban/rural) – There is a significant cost difference in states and cities across the USA. For example, house prices in New York City, NY, Honolulu, HI, or San Francisco, CA are among the highest in the country. Even “average” homes in those locations are over $1 million. That makes the saving up task even more daunting.

On the flip side, buying a house in say Hickory, NC, Youngstown, OH, Fort Wayne, IN, or Huntsville, AL will be much cheaper. If relocating is an option for you, consider widening your horizons a little to cover potentially cheaper places to live.

How much can you afford?

Begin thinking about how much of a house you can realistically afford. There are many more costs to homeownership than the sticker price of the house or monthly mortgage payment. We’ll break all this down in the budget section below.

What size house fits your needs?

How much space do you want in your future home? How much room do you really need? Determine a reasonable range of square footage that will meet your current and future stage of life.

Keep in mind, the average size of houses these days is actually going down. People are realizing (finally!) that bigger does not equal better. Excess space is actually a burden, financially and logistically.

What type of home suits you best?

There are several different home styles that you’ll need to consider as well. You’ll want to buy one that best suits your lifestyle (for as long as possible).

Here are the most popular types of properties…

Single story (no stairs)
Two/three story (stairs)
Condo
Townhome
Duplex/Triplex/Quadplex (great for house-hacking!)
Single-family detached house

Which best suits you and/or your family situation? Which best suits the lifestyle you want as a homeowner?

I know, this is super basic stuff… But the reason it’s important to really think hard about the type of home you’ll buy is because financially speaking, the longer you stay in the same place the better ROI you’ll have on your investment. Skipping over this step can have consequences later.

For example, one of my friends was very anxious to get into real estate and be a homeowner, so he bought the only house he could afford at the time. It was a tiny 1- bedroom apartment near the city where he worked. But, less than two years later he was married, got a dog, and had a new baby on the way! The apartment was way too small for his growing family, so he needed another place. Selling wasn’t ideal, and he didn’t have enough down payment money (or income) to afford a new, larger place.

All this to say, waiting and choosing the right house for you is better than jumping into homeownership ASAP. Patience wins with real estate.

Understanding Different Home Loan Options

Before you can pinpoint the exact amount to save for a down payment, it’s helpful to understand the different types of home mortgage loans available. Each loan type has different requirements, but knowing what you qualify for can have a big impact. The five most common forms of home loans are:

Conventional loans – These are most popular loan type. Some conventional loans allow for down payments as low as 3% of the buying price! That works out to $12,000 for a $400,000 property. However, if you put down less than 20%, you’ll have to pay private mortgage insurance (more on this below) until you reach the 20% equity mark in the home.
FHA loans – The Federal Housing Administration (FHA) requires only a 3.5% down payment for FHA-insured loans. That equates to $12,250 on a $350,000 property. For an FHA loan, you’ll need a credit score of 580, or 500 if you have 10% to put down.
VA loans – The United States Department of Veterans Affairs (or VA loans) do not require a down payment. These loans are limited to current and former U.S. service members and qualifying spouses.
USDA loans – Similarly, if you match the qualifications for a loan from the United States Department of Agriculture (USDA), you won’t need to make a down payment. These loans are for folks in rural and suburban areas and can come with income limits.
Jumbo loans – Jumbo loans are for house purchases that surpass the Federal Housing Finance Agency’s conforming loan restrictions. These mortgages frequently need a higher minimum down payment — anywhere from 10% to 20% — which varies by lender, area, and loan size. A jumbo loan’s size varies by geographic region, but it is normally more than $726,200 in most parts of the United States and can be as high as $5 million.

Fixed Rate versus Adjustable-Rate Mortgages (ARMs)

In addition to the different type of loan options above, there are two main loan formats when it comes to interest rates – fixed and adjustable.

A fixed-rate mortgage differs from an adjustable-rate mortgage in that the interest rate is fixed when the loan is taken out and will not fluctuate. The interest rate on an adjustable-rate mortgage might rise or fall, dpeending on market conditions. Many ARMs begin with lower interest rates that are locked in for a single year or many years. But when that initial term ends, the interest rate will adjust based on the current interest rate landscape.

You may have heard someone say they have a five-ARM plan and thought, “Huh?” That simply means they have an adjustable-rate mortgage (ARM) and the rate can shift after a five-year fixed period.

If you’re planning to stay in your home for a long time, a fixed-rate mortgage may be the best option. But an adjustable-rate mortgage may be better if you want to sell or refinance before the original rate term expires. Which option you choose will depend on a number of factors, including the rate discrepancy between the fixed and adjustable options.

Loan Terms (30 year versus 15 year)

In years past, the majority of home buyers secured a mortgage for 30 years. These days, more folks are opting for shorter term loans such as 10, 15, or 20 years.

A longer-term mortgage such as the 30-year option will provide you with lower monthly payments. However, 30-year loans typically come with a higher interest rate attached. That’s because lower-term loans are not as risky and cost less for banks. If you opt for the shorter, 15-year mortgage, the monthly mortgage amount will be higher, but overall cost of the loan is less over the long haul.

The higher the interest rate, the greater the gap between the two mortgages. For example, when the interest rate is 4%, the borrower actually pays over two times more interest to borrow the same amount of money over 30 years compared with a 15-year loan.

The main advantage of a 30-year mortgage is lower monthly payments, which could allow the buyer to purchase a more expensive home than they would be able to afford with a 15-year rate. The lower payments could also allow more flexibility in your budget to build savings or fund other investments, etc.

Deciding on a loan term plan should be based on your financial situation and stage of life. Would you be better off with the flexibility of smaller payments with a longer loan (30 years)? Or are you focused on the bottom line, and the interest savings you could get with a shorter loan such as a 10, 15, or 20-year loan? Are you in the position to make bigger monthly payments? Or do you need margin in your budget for other goals?

The ideal choice is the one that works best for your finances and long-term goals.

Determine how much you need for a down payment

As you formulate your list of goals, we suggest aiming for a 20% down payment. By saving enough cash to put 20% down, you’ll avoid paying PMI.

What is PMI you might ask? It stands for Private Mortgage Insurance. It helps protect the lender if the borrower defaults on their loan. So if you are unable to fork over 20% upfront on your home purchase, you will be required to pay PMI as part of your monthly mortgage payment.

While a 20% down payment will certainly save you money in the long run, don’t panic if you can’t save that much upfront. Saving up 20% is not a requirement to purchase a house, especially if you’re a first-time home buyer. It’s just a good rule of thumb because the more money you put down (especially during times of higher interest rates) the better off you’ll be from a monthly payment and total cost of ownership standpoint.

Also remember, PMI is often canceled automatically once you’ve reached the 22% equity threshold. As your house naturally appreciates (or if you make value improvements) you can likely get rid of PMI after 2-5 years.

How is PMI determined?

The lender computes your PMI payment by multiplying your loan amount by the PMI rate and dividing by 12. Let’s say your loan is for $450,000 and the PMI rate is 0.5%. In that instance, your monthly PMI payment is calculated, and the lender will add $187.50 to your monthly mortgage payment. But the PMI rate is partially determined based on how much of a down payment you bring to the table. The more money you put down, the lower the PMI rate will be typically.

Additional Homeowner Expenses

In addition to the pile of cash you’re going to save for a down payment, these expenses need to be taken in to account:

Home insurance & property taxes – Call your insurance provider to get quotes on what potential homeowners insurance rates may be. Rates have been climbing, blindsiding many homebuyers. Also, research the homes in the area to determine what the annual property taxes are. This is a commonly overlooked expense by folks who buy a new home – especially if you are upsizing.
Closing costs – The majority of closing costs are often paid by the person buying the house, not the seller. The seller however pays agency commissions to both realtors involved. If you’re purchasing a home, expect to spend between 3%-6% of the purchase price in closing fees.
Moving expenses – If you haven’t moved in while, you might be astonished to discover the physical cost of moving. If you DIY it and rent a moving truck, that can cost anywhere between $100-$4,000. Or, if you hire a moving company, you might have to spend in the range of $2,000 to $7,000 depending on how far your move is.
Renovations and maintenance – Are you planning to buy a fixer upper? If so, you’ll need to research and decide how much to budget for renovations. Even if your home is move-in ready, you’ll have to account for routine maintenance such as landscaping, roof repairs, gutter cleanings, window replacements, pest control, and chimney inspections, etc.
Emergency fund (3-6 month’s expenses) – It’s also wise to establish an emergency fund of at least three to six months of living expenses BEFORE you begin searching for a house. Life happens and while you can never prepare for everything, an emergency fund can help transform a full-blown crisis into a minor inconvenience.

Other things to consider during your goal-planning stage:

Is this your forever home? – If you’ve located a house you are interested in purchasing, think about how long you will potentially live there. A minimum seven-year ownership timeline is typically what we suggest if you’re going to buy. Otherwise, it might be smarter to rent.
Rent vs buy – The decision to buy (or rent) a home comes down to your personal situation. There are a lot of things to consider like geographic mobility, financial flexibility, housing stability, and creative freedom! Market conditions in your specific market are another major factor. Whatever you choose, make sure that your rent or mortgage payment is no more than 25% of your monthly take-home pay. You don’t want to be house poor!
House hacking – If you buy a home that comes with income potential, that can change the dynamics in a big way. For example, my friend bought a duplex and rented out the back for over four years. That allowed him to save more each month so that he could renovate that residence into an awesome single-family home. Being open to house hacking can change the financial realities of home ownership in a uniquely positive way.

2. Create a budget

Now it’s crunch time! Using all the research and information above, you’ll want to come up with some specific numbers to start saving up.

Budgeting is the first stage in any saving process. It’s tough to save for a down payment if you don’t know where your money goes each month. In the case of buying a house, it’s always easier to break everything down into smaller steps.

For instance, let’s say you want to buy a $250,000 house with the goal of putting 20% down ($50,000). If you want to accomplish this goal in two years that means you’ll need to save nearly $2,100 a month. If that’s too aggressive, you can flex that out to three (about $1,400) or four years (about $1,050), depending on your financial situation. Remember, it’s always impossible…until it’s done!

Down payment breakdown example

As one would expect, the bigger the down payment you save, the easier it is to get approved for a mortgage loan. Having that cash on hand reflects well on you! Saving more might also allow you to get a bigger/better house for the same, or even lower, monthly payment. Additionally, you may also qualify for a cheaper interest rate and lower mortgage insurance premiums.

Here’s how a 30-year, fixed-rate mortgage at 7% interest for a $400,000 property breaks down with different down payment amounts:

Home Price	Down Payment	Monthly Principal and Interest	Monthly PMI	Total Monthly Payment
$400,000	$20,000 (5%)	$2,528	$379.20	$2,907.20
$400,000	$40,000 (10%)	$2,395	$239.50	$2,634.50
$400,000	$60,000 (15%)	$2,262	$95.76	$2,223.76
$400,000	$80,000 (20%)	$2,128	$0	$2,128

Note: Mortgage costs in this example do not include homeowner’s insurance, property tax, or HOA fees.

As you can see, the larger the down payment, the cheaper the total monthly payments are.

Budgeting: Where to Start

Without a doubt, budgeting for a down payment on a house is a monumental task. Here are some steps to help you develop a budget that will put you on the path to homeownership:

Current savings rate – Determine how you plan to save money. Will it be a set dollar amount each month or a percentage of your monthly income? Make sure whichever you choose it’s aligned with your end goal. Then lock it in and be consistent.
Make a timeline and savings plan – There are several great websites, software programs, and apps you can use to generate a saving plan and timeline to track your progress. I use the free Mint version.

Tips to Help Save For a Down Payment Faster

There are a TON of creative ways you can cut expenses in an effort to save more money. And the bigger the expense you can cut, the faster you’ll save that money.

Taking drastic measures might also be possible, because you’ll only need to do it for a handful of years. In the grand scheme of things, “depriving yourself” of luxuries for a few years while you’re younger is always worth it if it means helping buy that first house!

Examples to cut big expenses:

Move back in with parents – While this might not be feasible for everyone, if you have gracious parents willing to assist you with your savings goals, crashing at their place temporarily can help fast track your savings.
Live carless – Again, maybe not feasible for everyone. Living without a car can actually save you an average of ~$12,000 per year. That’s no chump change! And in today’s world with public transport, bike routes, and ride-share services, living without a car is quite easy!
Cancel subscriptions – Do an audit of your subscriptions and cut what you aren’t using. This could save you $100+ a month. Are you paying $120+ a month for 300 channels you never watch? Cutting cable can save you nearly $1,500 a year.
Gym – Cancel your gym memberships and exercise at your house for free. Or run at the park. At $50 a month, that saves you $600 annually.
Eating out – Do you eat out every day for lunch and several nights for dinner? If you can learn to make simple meals at home and reserve your restaurant experiences special occasions, that’s a potential savings of $250/month/$3,000/year. Try a no eating out challenge for a full year!
Entertainment – By skipping all the big concerts, sporting events, shows, movies, etc., you can easily save $200 a month.
Insurance – You might save $1,000 or more a year by simply shopping around and negotiating a cheaper car, home, or life insurance policy.
Clothing – Taking a break from buying new clothes can put at least $100 a month back in your pocket.
Cell phone plan — If you haven’t reviewed your cell phone plan recently, chances are you can save a lot of money by switching to a low-cost, cell phone provider.
Vacations – It’s OK to hit the pause button on your worldwide, lavish travel plans. By skipping at least one vacation a year, you can save $2,000+ easily.

If you make saving for a house your top priority, it’s easy to start saying “no” to less important expenses. By the way, once you’ve saved a hefty amount of cash, you can always add back in those extra expenses later. You don’t have to live in artificial poverty forever. But if you want to save money as fast as possible, cutting excess expenses is the quickest way.

Ways to earn more

After you’ve reached a point of cutting every expense possible, now it’s time to figure out ways to increase your income. Below are a few ideas:

Negotiate a pay raise – Obtaining a raise is most likely the quickest approach to improve your savings rate and financial situation. If you don’t negotiate for a raise, you may be leaving a considerable amount of money on the table. This might significantly improve the quality of your life and help you achieve your most important financial goals more rapidly.
Sell stuff (online and garage sales) – How many items do you have lying around the house collecting dust that could potentially be sold? There are many websites and apps that make reselling easy. Garage/yard sales are also a great way to unload unwanted/unused stuff quickly for a quick buck!
Raises/bonuses/tax returns – Any financial windfall you receive during the year such as a raise or bonus from work, or a tax refund can be used to boost your down payment savings goal.
Part time/side gigs – Do you have a specialized skill that can bring in extra cash? Anything from writing/editing, website/graphic design, painting, handy-person (fixing things), social media marketing, etc., can net you additional income. Choosing the right side hustles or side gig can make you a great deal of extra money!
Rent stuff – It’s now possible to rent just about anything you own such as houses/extra rooms, cars, bikes, electronics, power tools, musical instruments, etc.

3. Pay down your other debts

A big part of saving for a home is considering all of your other consumer debts. Not only does your overall debt to income ratio have a big impact on qualifying for a mortgage, it’s also not really a smart move to take on a new HUGE mortgage if you have other large debt payments to make.

For instance, if you have high-interest debts, like credit card obligations or an expensive car loan, you may not be able to afford a new property. High-interest rates can devastate you financially, using compound interest against you. So, paying off any high-interest debt before saving for a down payment is the best path.

Paying down high-interest debts helps your finances in many ways. First, it eliminates those monthly payments and you’ll be able to save more of your paycheck. Also, paying down debt can increase your credit score which is a key factor in the home buying process. A higher credit score can help you secure better loan terms when applying for a mortgage.

If you have a lot of debt currently, here are a few good resources to check out:

Debt-to-Income Ratio

If you have too much debt currently, some lenders will flat out deny you a mortgage. One calculation they use to determine your borrowing risk by looking at your overall debt to income ratio, or DTI.

DTI is a percentage of all your monthly debt payments as compared to your total monthly gross income. In general, lenders want you to have a total DTI lower than 36%. The lower the DTI, the higher likelihood you’ll get approved for the loan.

Using round numbers, here’s an example of a good debt to income ratio…

Let’s say you earn $10,000 per month before taxes. And let’s say your total debts repayments (including your new mortgage) will be $3,000 per month. This gives us a DTI of 30%, which is great!

But, if you had 2 car loans, some credit card debt, and your total monthly payments were more like $5,000/m, this would put your DTI at 50%. Lenders would not approve a loan like this.

4. Resist tapping into other savings/investment accounts

If you’ve previously been funding other savings and investment accounts you may be faced with a dilemma… The temptation of dipping into your other accounts to help expedite your down payment savings goals may be difficult to resist.

I get it. The money is right there in front of you… All you have to do is make a withdrawal or transfer and you’ll have a big down payment. However, that’s usually a bad move. Robbing from one type of investment to fund another not only makes you house-poor, but it slows your overall wealth building progress. Primary residences don’t typically have a great ROI.

Leave these accounts alone…

Here are some accounts you might be tempted to drain, are reasons why you shouldn’t touch them:

Emergency Fund – Just like the commercial once said, It’s my money, and I need it now!, Yes, it’s true…it is your money you’ve set away in case you need it, but it’s advisable to wait until you really need it — which may be throughout the home-buying process. For example, you may need to pay for an appraisal gap or a costly repair immediately after moving day.
401(k) – Borrowing from your 401(k) carries risk. If you lose your job, you must repay the loan by the next tax-filing date, or it will be taxed as ordinary income, with a 10% penalty if obtained before the age of 59½. While you may be permitted to make a 401(k) early withdrawal without penalty under a hardship withdrawal exemption (purchasing a property qualifies as an “immediate and heavy financial need,” according to the IRS), reducing your retirement savings now can have significant long-term effects.
Individual Retirement Account (IRA) – First-time home purchasers can withdraw up to $10,000 tax-free from an IRA to purchase a home. Of course, unless it’s a Roth IRA, you’ll have to pay the income tax payable on the withdrawal. This may appear to be a good idea on paper, but sourcing retirement funds to purchase a home can jeopardize your post-work goals.

Too many Americans are waaaay behind on retirement savings, and dipping into 401(k)s, IRAs and other retirement investments is a big reason why. Don’t fall into this trap!

5. Check and repair your credit

Your credit score will determine whether or not you qualify for a mortgage and will impact the interest rate offered by lenders. A higher credit score will typically result in a lower interest rate, thus saving your thousands over the life of a loan.

Here are a few ways to improve your credit score before purchasing a home:

Request free copies of your credit reports from each of the three credit bureaus — Experian, Equifax and TransUnion. Annual Credit Report is the federal site to grab your credit reports for free. Be sure to review your reports thoroughly and file a dispute for any errors that could hurt your score. NOTE: You should NEVER have to pay for a credit report.
Pay all your bills on time while maintaining your credit card balances as low as possible. (Hopefully you are doing this anyway!)
Keep current credit cards open. Closing a card will increase your portion of available credit, which can lower your score.
Refrain from opening new credit accounts while you’re applying for mortgages. Opening new accounts may result in a hard inquiry on your credit report and a decrease in the total average age of your credit accounts, which may harm your credit score.
Track your credit score over time. Again, this should be done for free, and many banking apps allow you to do credit monitoring for free as part of their service!

There are many credit score myths floating around. One of the biggest ones relating to home ownership is that you will pay higher fees if you have a good credit score. That is simply not true! Work on upping your credit score as much as possible to secure the lowest rate available to you when buying a home.

6. Open a High Yield Savings Account (HYSA)

One of the most common questions we get when folks are saving for a house down payment is “where should we keep all the cash we’re saving?”

Investing your savings is risky, because you could potentially lose money in the short term. But saving plain old cash is risky too, because dollars just sitting around in a checking account for years lose value thanks to the pesky reality of inflation.

The solution for most folks is to save all down payment money in a High Yield Savings Account (HYSA). It’s kind of like a checking account, but it pays a bigger interest rate on your savings.

HYSAs are offered by most online banks. They tend to pay much higher rates than traditional savings/checking accounts. The national average for regular savings accounts is a paltry 0.46%. However, HYSAs yield substantially more — in some cases as much as 10-20 times in interest! Right now in 2023, many of the best HYSAs are paying 4-5% APY!

In addition to higher interest rates, HYSAs generally do not charge account fees. They’re also usually FDIC insured up to $250,000 per depositor. All in all, HYSAs are great accounts to sock money away for short-term goals like a down payment on a house.

Investing is also an option. But as mentioned before, it comes with a higher risk. If your savings timeline is over 5+ years, you may want to consider investing in low-cost index funds as it could offer higher returns than a savings account.

7. Automate your savings

Once you’ve turned all the screws on your finances and set up a good savings system, it’s time to sit back and put everything on autopilot.

You can do this by setting up automatic transfers from your checking to savings accounts, so the money is out of sight and out of mind. If you’re prone to impulse purchases, automating your savings could be a godsend. Contact your bank (or just jump on their mobile app) and request reoccurring transfers from your primary checking account to your HYSA. Every month, your bank will take care of those transactions, meaning you are saving without even thinking about it. This can be really beneficial for folks who struggle with money management. Once that money is “gone” and out of your primary checking account, you’ll be less inclined to spend it because it’s less accessible.

Another way to automate your finances is to start using a budgeting app, like YNAB. Digital budgeting apps are really advanced these days, automatically connecting and integrating with your banks and credit cards. They make it really easy to set savings goals, and digitally track your progress within the app. YNAB is free for all students, or $99 per year for their standard plan. But even though it costs money, the average YNAB user saves $6,000 in the first year using their software. It WORKS!

8. Explore first-time home buyer programs

Without a doubt, becoming a homeowner can be a financially daunting process. But, government agencies and lenders want more people to be buying homes, so they offer various programs to help. Qualified “first time” home buyers can obtain loans with minimal down payment requirements and take advantage of local buyer aid programs. Some may even finance fixer-uppers, which require more repair but are less expensive up front.

Additionally, many states, as well as certain cities and counties, have first-time home buyer programs. These combine low-interest loans with down payment and closing cost help. If your income is low to moderate, you may even be eligible for a grant or loan forgiveness. Some states even provide tax credits that can be applied to your federal tax return.

All these first-time home buyer aid programs increase buyers’ chances of purchasing a home in specific geographic areas or support borrowers in specific professions such as educators, first responders, active-duty military, and veterans.

If you are a first-time home buyer, take the time to research local and national aid programs. This could prove to be a vital step in the process of becoming a homeowner. We recommend speaking with 3-4 different lenders or mortgage brokers to discuss available programs. Don’t just talk with 1 bank about getting a mortgage – shop around because you’ll find some brokers are more “thinky-outside-the-boxy” than others.

Some cool news, Freddie Mac has now launched a tool called DPA One. This helps lenders and brokers search for more available loan programs for first time buyers. It includes over 400 different down payment assistance programs!

9. Stay the course and don’t give up

As you’re progressing with your savings goals, it’s OK to continue shopping or browsing for your dream home. But don’t get too down if the real estate market appears overly inflated. Remember, the market always changes. Just keep saving. Good houses and good deals are like buses – if you miss one, another will come right around the corner.

In that vein, don’t get too emotionally attached to the idea of being a homeowner ASAP. You don’t want to be too clinical in your assessment, but you also don’t want to get so emotionally invested that you change your plans.

Also, be wary of not buying more house than you can afford. Just because you were preapproved for a $500,000 loan, that doesn’t necessarily mean it’s wise to take on that much debt. Buy the right and safe way. Keep searching for the right house for YOU, not the biggest one to impress other people.

Lastly, don’t be tempted to buy too early. If you set a savings goal of 3 years to build up a down payment, and then realize that you’re not close to that goal, that’s OK! Don’t feel the pressure of an artificial timeline to become a homeowner. It’s better to extend your timeline and wait for a good deal, than to buy too soon and regret the purchase.

Even if you find a great deal, it’s probably better to wait until your saving goals have been met.

Don’t forget about retirement savings

While you’re saving for a down payment, it’s tempting to throw any and all spare savings into your house fund. But it’s really important to continue to invest for retirement, even if you have a small income.

Tax-advantaged accounts have an expiration date each year for contributions. Which means as each year passes, so do your chances of having tax-deferred or tax-free investing. So keep contributing to your 401(k), Roth IRAs, HSA, etc., to be certain your long-term goals are being saved for. You don’t want to be facing retirement with a big house and no other savings at your disposal.

10. Bonus: Negotiate your fees!

As you start to see the light at the end of the tunnel of your savings goal, you will begin narrowing down loan products and talking with realtors. Instead of using your friend’s cousin and only trusting that one person with your case, shop around. Shop around for insurance, a realtor, a mortgage lender, and any contractors you use.

When it comes time to buy a house, remember to review all the closing costs, title fees and escrow charges. There are a lot of little things you can do to bring down costs. For example, some banks offer a mobile notary service where someone comes to your house to sign closing documents. While this might give you the warm fuzzies and feel like a good service they offer, you’ll probably also see a $600 charge in your closing statement for that service! Instead, you can get the documents notarized for $45 at the local post office or anyone who has a notary license. Just by asking upfront questions about each line item within the closing costs can save you a fair bit of money.

Don’t forget…everything can be negotiated. Even the stuff you never thought possible.

The Bottom Line:

For many folks, homeownership is still the American Dream. But, saving tens of thousands of dollars for a down payment can make you feel nauseous. It’s a huge amount of money to build up, combined with emotions running wild and the need to learn confusing new house-buying lingo.

Having a solid plan in place will help ease your initial anxieties. First, determine how much you’ll need for a down payment (20% is ideal, but definitely research loan programs available to you), then roll your sleeves up and start saving.

There are numerous ways to cut back your expenses to earn more money. Developing a household budget will make your savings plan more efficient.

In order to be handed the keys to your future home, begin planning as soon as possible. You can (and WILL) be a homeowner if you want to be. Just stay focused and put in the hard work.

More Resources: