How to save for a down payment

If you're financing your home purchase with a mortgage, the down payment is the up front amount you pay at closing.

Saving for your down payment is the first step in the homebuying process. It can also be the hardest: According to the Federal Housing Finance Agency, down payments and other upfront costs "pose one of the largest obstacles to homeownership."

Find out how to save for your down payment, how much you'll need and what assistance is out there. 

The first step in saving for a down payment is figuring out how much you can afford to spend on a house altogether. There are several popular strategies:

• 28/36 rule: Probably the best-known metric, this system involves putting no more than 28% of your gross monthly income towards housing expenses and 36% toward overall debt. Besides mortgage payments or rent, housing-related costs also include insurance, utilities and property taxes.
  
• 30% rule: According to the U.S. Department of Housing and Urban Development, spending more than 30% of your take-home pay on housing may leave you unable to afford other essentials, like car payments or even groceries.
  
• 2.5-times salary rule: Another common formula — and probably the easiest one to calculate— is to keep your home budget to no more than 2.5 times your gross annual income. 

While your salary will hopefully increase through the years, lenders aren't looking at your peak earning potential. They want to know you can make payments with what you make now.

Below, we calculate how much home someone can afford using HUD's 30% rule.

Try out the mortgage calculator below to see how much home you can buy within the 30% range.

Once you know how much house you can afford, you can start thinking about how much you're ready to pay up front. In 2024, down payments for first-timers averaged 9%, according to the National Association of Realtors, and that's the highest they've been since 1997.

Still, with 20% down you're likely to get a better interest rate and you won't need private mortgage insurance. You'll also be starting with a lot more home equity.

Depending on the kind of home loan you take out, there are minimum down payment requirements:

• For conventional mortgages, lenders typically require at least 5% down.
  
• Per  Federal Housing Administration regulations, the minimum down payment allowed for an FHA loan is 3.5% of the purchase price, provided the borrower has a credit score of at least 580. With a score between 500 and 579, you'll need to put 10% down.
  
• VA loans and USDA loans have no down payment requirements.
  
• For jumbo loans, which exceed the FHFA's conforming loan limit, lenders may ask for anywhere from 10% to 30% down.

There are a few different ways to save for a house — you might try some or all of them.

Open a dedicated account

Having a separate account for your down payment will help you fight the temptation to dip into it. A high-yield savings account or money market account will grow your money faster, and you can set up automatic transfers from your checking account to funnel a slice of your paycheck each month into your mortgage fund.

Set a timeline

Consider how long you want to save for a home and devise a budget that lets you meet your goal in that timeframe.

You may realize you need more time than you thought to save. That's not necessarily a bad thing: You can use the extra time to pay down existing debts and improve your credit score so you qualify for a better rate when it's time to submit your application.

Cut expenses

Look at where you can make cuts in your budget — whether that's eating out less, canceling streaming services or canceling a big vacation. Shop around for cheaper car insurance or look for a bundling discount by getting auto and renters policies from the same provider.

If you do rent, look for a cheaper place or even consider moving back home. The national median asking rent was $1,695 in December 2024, according to Realtor.com. At that rate, a year with your family would save you more than $20,000.

Earmark tax refunds and bonuses

Another savings strategy is to commit to funneling any tax refunds, work bonuses, cash gifts or other extra money that comes your way into your down payment fund.

The average federal refund in 2024 was $3,138. If you don't need it for living expenses, that can give your nest egg a considerable boost.

Depending on your income and where you live, you may also be eligible for down payment assistance in the form of credits, grants, forgivable loans and other programs that can bolster your savings.

Lender programs

Many banks and other lenders have proprietary down payment assistance programs: Both Guild Mortgage's 1% Down Payment Advantage loan and Rocket Mortgage's ONE+ loan let borrowers who make no more than 80% of the area median income put as little as 1% down and receive a grant for another 2%.

The Chase Homebuyer Grant provides eligible borrowers with up to $7,500 to boost their down payment, lower their interest rate or put towards closing costs. It's available to applicants in 15 metro areas — including Atlanta, Chicago, Los Angeles and New York.

Government assistance programs

Down payment assistance is also available from federal, state and local governments and other sources.

The nonprofit National Homebuyers Fund offers a forgivable loan of up to 5% of your home price if you stay in the house for at least five years.

In New York, the HomeFirst Down Payment Assistance program provides eligible first-time homebuyers with up to $100,000 to put toward their down payment or closing costs.

In Illinois, the IHDA Access Forgivable loan provides residents who meet income and home price limits with up to $6,000 toward their down payment.

You can find other down payment assistance options here.

While your down payment can get you in the door of your new home, there are lots of other housing expenses you'll need to save up for.

• Lenders fees: Most lenders charge fees for process, approving, origination and underwriting.
• Closing costs: At closing, lenders also typically charge borrowers fees for appraisal, title insurance, among other things. You may also have to pay for other closing costs to other parties like the notary. Altogether, closing costs, which include lenders fees, can come out to 3% to 6% of the overall cost of the loan, so you should also budget that into your savings.
• Mortgage reserves: You should have two to six months of mortgage payments saved. Many lenders require this.
• Mortgage insurance: Typically between $30 and $70 per month for every $100,000 borrowed.
• Property taxes: Typically, these will be factored into your monthly mortgage payment. They average about 1% of your home value each year.
• Homeowners insurance: Typically between $100 to $200 per month.
• Moving costs: Moving your life into your new home will cost at least a couple hundred for local moves and several thousand for long-distance moves.
• New furnishings, renovations and repairs: You may need to buy a new couch or redo the bathroom. Make sure to save up for these things when you purchase a home.
• Emergency fund: You should have at least three to six months of housing expenses saved in case you lose your job.

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