So You Want to Start Saving for a Down Payment – Now What?

by Emily LongJanuary 26, 2018

Many people dream of one day owning their own home and escaping the coin-operated laundry machines and shared walls of apartment life. For most people, buying a home is the most significant expense they’ll ever have, thereby requiring a lot of planning and saving.

Preparing for a down payment can seem overwhelming and, at times, impossible when putting 20% down costs two-thirds of the average household income. However, following a few essential tips can make the process more manageable. If you’re dreaming of homeownership, here are the first steps to save for a down payment.

Determine How Much You Need to Save

While there are loan options that allow for a smaller down payment, most professionals recommend putting down 20% of a home’s total cost. With this in mind, evaluate how much you can reasonably afford to spend on a home.

A basic rule of thumb for budgeting is to ensure your monthly mortgage payment is no more than 25% of your monthly income. Keeping to this percentage helps you pay off other bills and save for retirement, among other financial goals. Use a mortgage calculator to set a budget and down payment goal. These calculators are immensely helpful as they factor in interest, which will significantly impact your monthly payment.

Set a Goal End Date

Once you know the total amount you need to save for a down payment, set a goal end date. When do you want to purchase a home? Divide the total down payment amount by the number of years to ascertain how much you need to save each year.

For many people, it can be helpful to break this number down even further, as the total number will seem less overwhelming. For example, saving $800 per month or $200 per week seems more manageable than saving $9,600 (or $10,400) per year. Make sure your goal end date reflects how much you can comfortably save each month or year while still paying your other bills on time.

Find the Best Way to Save

The more you can save, the faster you’ll reach your goals. You can use compound interest to your advantage to help you save faster without actually contributing more. Instead of allocating funds into a savings account, look into accounts that offer higher interest.

Keep in mind that the higher the return, the higher the risk. While investments can offer higher returns, you may lose money in the process. For a more conservative option, consider a high-yield savings account or money market account. These accounts can offer interest rates as high as 1.5%. Certificates of deposit are another option. While you’ll have less liquidity, as you’re required to keep your money in the account for a set time frame, CDs offer up to 2.5% interest rates.
Neat beige home with two garage spaces.

Speak with a Financial Advisor

While the internet is a goldmine for tips and advice, no website can offer you personalized guidance or answers to questions about your specific finances. Saving for a down payment is a big goal. A financial advisor can answer your questions, evaluate your savings opportunities, establish a budget, identify areas where you can cut back in your expenses, and help you keep on track toward your down payment goals.

And when it comes time to search for a house, an advisor can help you budget for your new expenses, evaluate lenders and interest rates, and set a practical limit to avoid taking on too much debt.

Find Out Your Credit Score

Your credit score plays a vital role in obtaining a mortgage. Lenders want to ensure you’re responsible with your finances and can pay your bills on time. The higher your score, the more likely a lender will offer you a lower interest rate. Credit scores range from 300 to 850 points. For competitive interest rates, aim for a credit score of 750 or higher.

You can request a free credit report at to find out your score. Remember, these scores change on a regular basis. If your score is lower than you’d like, you can raise your score over time by keeping under your credit limit and paying your bills on time. Improving your credit score won’t happen overnight, but small changes can make a difference gradually.

Protect Your Identity

Along with working to raise or maintain your credit score, protect it. You can find countless identity theft horror stories online, and becoming a target yourself can completely derail your home purchasing plans and other financial goals.

The easiest way to keep a watchful eye on your credit score is to use an identity theft protection service. The best and most robust identity theft protection services will monitor your Social Security number and offer insurance, recovery assistance, credit monitoring, and mobile alerts in response to suspicious activity. These services are relatively inexpensive and monitored for you so you can focus on saving for your down payment.

Buying your first home is a significant milestone in life. While saving for a down payment will take a lot of time and effort, establishing and committing to a plan can help you reach your goal. Following these six steps will help you set a solid foundation as you save for a down payment and keep your finances and credit score in good shape.

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About The Author
Emily Long
Emily Long is a home safety and automation expert for She loves to geek out on new tech gadgets. When she isn’t writing about smart home tech or home safety and security, she can be found teaching yoga, road tripping, or hiking in the mountains.