9 Ways to save for a down payment on a house

Make your homeownership dreams come true with the right savings strategy.

Key takeaways:

  • The earlier you start saving, the quicker you’ll reach your goal of homeownership. There are many things you can do now to start saving.
  • You can reduce your spending or increase your savings, and when you do both at the same time, you’ll reach your goal even faster.
  • Put your savings into a separate account, where it’s protected from accidental spending. We make it easy to set up.


Homeownership is an American dream for many. A home is a big purchase, though, which may make saving for the down payment feel out of reach. But there are ways to bring that dream closer to reality.


How much do you need for a mortgage down payment?

This depends on several factors, including the home’s purchase price and the requirements of the mortgage program you’ve chosen. In the old days, many mortgage lenders had a 20 percent down payment requirement, but there are more home loan options today, including conventional loans and government-backed loans such as VA, USDA, and FHA loans. All have different down payment requirements.

Your required down payment may also be determined by your credit score. For example, a high credit score could drop the required down payment for an FHA loan by as much as 5 percent. But know that if you put less than 20 percent down, you may have to pay for private mortgage insurance. And don’t forget about closing costs, moving expenses, homeowners insurance, and other costs you’ll need to cover.


9 Ways to save for a down payment

1. Trim expenses out of your budget

Most people are surprised when they start totaling up their everyday expenses for things like take-out and fast food. Then when you add in the monthly cost for subscription-based services like cable and internet, movie or music streaming, gaming services, and others, your opportunity to save becomes even bigger. Can you go for a year with just one streaming service? How often do you watch all those cable channels? Do you really need ‘unlimited’ everything? When did you last use that gym membership? And know that you’ll save big when you shop grocery smart and eat at home.


2. Change jobs, ask for a raise, or pick up some side work

Today’s competitive market rewards people who advocate for themselves. While the thought of asking for a raise or searching for a higher-paying job can feel daunting, it could pay off, especially if you know your skill set is worth it. You could also consider taking on extra work; it’s never been easier to moonlight to earn extra cash. Take on a weekend service job or dash into a delivery gig, then watch your savings grow.


3. Rent out a room or a parking space

Savings opportunities may be sitting right in front of you. Adding a roommate could cut your rent significantly. And if your living arrangement comes with a dedicated parking space, ask your landlord if you can rent it out and park somewhere else instead.


4. Sell stuff you don’t need

Online services like OfferUp, Craigslist, eBay and Facebook Marketplace make it easy to sell things you aren’t using. By selling your old electronics, clothing, sports equipment, furniture, and even jewelry, you can clean the closet and put money in your savings account. When selling items, always think about safety, though. Meet in a public place, bring a friend, arrange for instant payment, and trust your instincts.


5. Don’t buy new

This requires some real self-control, but savings add up more quickly when you’re not spending. So, drive that car another year and save the monthly payments. Stick with your existing phone for another year, wear last year’s outfits, and visit the library instead of the bookstore. Even little things add up.


6. Put a temporary hold on your retirement savings or consider an IRA withdrawal

The keyword here is ‘temporary,’ as in one or two years at most. Because it’s a long-term investment, your retirement savings benefits from steady deposits over time. But your overall wealth can also benefit when you build home equity; it’s one of the best reasons to own instead of rent. If putting part of your retirement savings into a savings account will help you reach your home-purchasing goal within a year or two, consider this as an option.

While first-time homebuyers can withdraw up to $10,000 for a down payment from their IRA without penalty, remember that this $10,000 could end up being worth much, much more when you retire because of compound interest. Be cautious when considering this.


7. Save windfalls, don’t spend them

Your holiday bonus, commission check, tax refund, severance pay, and even birthday money can go directly into the down payment savings fund. The same holds true if you find yourself with a pay raise, an inheritance, or an insurance settlement. Extra money can be a wonderful surprise; let it put you closer to home ownership.


8. Reduce your debt

When setting their rates, mortgage lenders consider your debt-to-income ratio. If you have a lot of debt, you may be required to make a larger down payment. There are two popular ways to reduce your overall debt—the snowball method (pay off the debt with the smallest balance first) or the avalanche method (pay off the debt with the highest interest first). Both work; just choose the one that makes the most sense to you.


9. Automate your savings

This is an easy one. When you automate your savings, you set yourself up for success. Many banks and credit unions allow you to automatically distribute a portion of your paycheck into a savings account or set up a recurring transfer from one account to another. This can be one of the best ways to make sure you prioritize your down payment savings goal.


Where to save your down payment

When you’re saving for something special, such as a down payment for a home, it’s important to tuck that money into a separate account, where it’s protected from accidental spending. You have options:


Savings account

A basic savings account is a no-brainer. If you can find one that earns high interest or pays substantial dividends, even better. Since you’re saving for a large purchase, you’ll likely be able to meet the minimum balance requirements of a premium savings account (which has higher returns) as your savings grow.


Money market account

Money market accounts typically have higher minimum balance requirements and may earn higher returns than a basic savings account, depending on your balance and account type. That’s because the money is invested in short-term debt issued to the government and U.S. companies.


Certificate account

Like money market accounts, certificate accounts have historically yielded higher returns with higher minimum balance requirements. For example, if a regular savings account has an Annual Percentage Yield (APY) of 0.10 percent, a certificate account could offer an APY between 0.300 and 3.700 percent*, depending on the term length and the amount deposited. Those may sound like small percentages, but as with all things involved in savings and interest rates, a little bit grows over time. 

Unlike money market accounts, though, you must agree to leave your money invested for a fixed term, at a fixed rate with a certificate account. For example, at Global, you can choose between one month and five years. The longer the term, the higher the rate of return. Certificate accounts are well suited for short-term savings goals like a down payment for a home, since tapping into your money before the term ends incurs withdrawal penalties.

Roll out the welcome mat

The process of saving for a down payment on a home will take time and hard work, but every little bit helps. And it will all be worth it when you see that Sold sign go up.

Once you’ve met your down payment goal, congratulations! You’re one big step closer to the home of your dreams and ready to apply for a mortgage. The home loan experts at Global Credit Union Home Loans will be happy to help answer your questions and walk you through the application process.

*For current rates at Global, see our rates page.

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