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How to Save Enough Money for a Down Payment in One Year or Less - Quicken Loans Zing Blog

If you are a prospective home buyer, you know that one of the most difficult parts of pursuing homeownership is saving up for a down payment, but it’s absolutely possible.

Let’s explore how to save for a down payment.

What Is A Good Down Payment For A House?

Most mortgage lenders would love if borrowers put down 20% for a home as it lowers their risk when funding the loan. However, in today’s market, you won’t be required to pay that much. But you’ll probably have to pay for private mortgage insurance (PMI) instead, which is an extra cost on top of your monthly payment.

First-time home buyers can access several mortgage options that allow for a more manageable down payment. Depending on your situation, you may qualify for one of three low down payment options:

  • A fixed-rate conventional loan: You can obtain these loans with as little as 3% down.
  • An FHA loan: You can obtain these loans with as little as 3.5% down.
  • A VA loan: You can obtain these loans with as little as 0% down.

As you can see, there are plenty of ways to avoid the large 20% down payment. That could shave thousands of dollars off your expected down payment – and months off of your savings strategy.

Consider exploring our mortgage calculator if you aren’t sure how much you’ll need to put down on your new home.

How To Save For A House Down Payment

As you start to consider how to save for a down payment on a house, there is one undeniable fact – saving up a substantial amount of cash is hard. The process of saving for any major expense can be a challenge. But the good news is that you can steadily build your down payment fund by taking action on the steps below.

Depending on where you are starting from, you may be able to achieve homeownership within a year. Are you ready to get started? Here are the top steps you should take when saving for a house down payment.

1. Plan Your Savings Budget

As with all major financial goals, you’ll need a plan to start building up your down payment.

The first component of the plan is to determine how much you’ll actually need to save. You can strategize by looking at the homes in your target area for homeownership. Consider the prices and decide what would be the right budget for your homeownership dreams and your finances.

Once you have an idea of how much you plan to spend on your home purchase, consider your loan options to see what size down payment you’ll need. If you are considering a fixed-rate conventional loan, you may be able to put down as little as 3%. That would lead to a down payment of $6,000 on a $200,000 house.

But don’t forget to factor in closing costs, which can be another significant expense – typically, closing costs run between 3% – 6% of the home purchase price. So, keep that in mind when deciding on your savings goal.

With a number in mind, it’s time to set aside money in your budget for this goal each and every month.

Instead of leaving the funds sitting in your checking account, consider transferring these specific savings into a high yield savings account. The separate account should prevent any accidental spending. Plus, the high yield will help push you toward your ultimate goal.

2. Increase Your Income

Even with a budget in place, you might find that there is simply not enough money available to allocate toward your down payment fund. Unfortunately, that’s normal when you are looking at buying a home.

Most prospective home buyers, including myself, had to get creative and boost their income in order to increase their savings. Personally, I took on a side hustle to boost my income. But there are lots of ways to make extra cash, including working overtime, selling unused items, taking on a second job, or negotiating for a raise at your current job.

It might take some brainstorming to find the right source of extra income for you. But the extra effort will be worth it when you make your dream of homeownership a reality.

3. Cut Unnecessary Spending

In addition to increasing your income, cutting out extra spending can give your savings a boost. Although cutting out spending isn’t necessarily fun, it can help you achieve your savings goal. A few places to consider cutting include:

  • Decrease spending on take-out and fast food.
  • Limit entertainment-related purchases, like movies and video games.
  • Forgo the vacation this year.
  • Reduce spending on trendy clothing.
  • Relocating to a more affordable apartment or neighborhood.
  • Get a roommate to save on housing costs.
  • Start biking to work to save gas money.

Seek out creative ways to cut back on costs in your own life. Although small cuts may not seem too dramatic, a series of small cutbacks can lead to big savings.

4. Pay Off Your Debt

If you have high interest debts, such as student loans and credit card balances, that could be eating into your ability to pay for a new home. High interest rates can wreak havoc on your finances. With that, it’s a smart move to pay off your high interest debt before saving up for a down payment.

This strategy offers two benefits.

First, you won’t have high interest debt burning through your paycheck. When these expensive debts are wiped from your books, you’ll supercharge your ability to save for a down payment.

But second, paying down your debt offers the opportunity to increase your credit score. Since a credit score is a key component in the home buying process, this can help you obtain better loan terms when you apply for a mortgage.

It’s never a bad idea to pay off debts with high interest rates. But as you prepare for homeownership, the pressure to eliminate these expensive debts is higher than ever.

5. Research First-Time Home Buyer Programs

If you are a first-time home buyer saving for homeownership, then you should take some time to explore the common first-time home buyer programs.

These programs are designed to help you achieve your goal of buying a home by helping out with a down payment or offering a low down payment option. A few to consider include Fannie Mae and Freddie Mac’s down payment assistance programs, VA loans and grants, USDA loans, and FHA loans.

You might be surprised by the amount of help that is available to you. Depending on your personal finance situation, you might be able to cut your required down payment amount by thousands.

The Bottom Line

The process of saving for a down payment will take some time. But with diligent action, the process might not take as long as you might think. As you implement the steps above, you’ll be well on your way to becoming a homeowner sooner rather than later.

Are you ready to discuss your home buying options? Start by talking to a Home Loan Expert today.

This Post Has 2 Comments

  1. Quicken Loans® is the biggest UPSET I have ever experienced. They say it is fast and easy but believe me……it was horrible!!!! My mother passed away and my family needed money for the funeral and plots. Saw the commercial and thought from what they were saying it would be in 30 days or less. From there I asked them while we were dealing with my mom…..please don’t call until we get through the funeral, and burial. We told them what time and day it was and they called all thru the service.They called every day at least 10 times a day. They would say you need to complete this now it is utmost important!!! If this isn’t completed we cannot process loan. ………to make a Long story short. They have a third party contact that will dissolve any hopes of getting your loan. I had to do a voice conference call with them and my current mortgage company. They asked questions on how the payments have been ( for the past 10 years) and have there been any over 30 days late. They said no……they asked have any been on 30 days late. They said no….. They then asked for the date when the mortgage was paid in December and they said on December 31th. But the payment was due on the first?? They said yes….. I then butted in and said she said there wasn’t any payments over 30 days late! Their 3rd party asked again and said I’m asking the questions if the payment was due on the first wouldn’t that make it 30 days late? Then the lady from my mortgage company said again there are no payments over 30 days late. Their 3rd party outsourced company still reported it over 30 days late and they required more paperwork we were ready to close the loan and would have a extended it a couple of more weeks to get proof we weren’t late. Even though we had good credit and great income. And have lived In our home for 20years with No late payments. We finally had enough so we cancelled the loan. So they got my $400 good faith ( which they are Not) and I hope you all DO NOT USE QUICKIN LOANS!!!!!!!!!!

    1. Hi Harry:

      I’m sorry to hear about your mother. I’m also very sorry for your experience with us. I’m going to pass this along to our client relations team so we can look into it and see what happened. Look for an email.

      Thanks,
      Kevin Graham

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