Key takeaways
- Start with a budget audit and a clear savings target. Experts recommend spending no more than 30% to 35% of net monthly income on rent and utilities. Multiply your gross annual income by 2.5 to estimate what you can afford, then set a down payment goal that includes 3% to 5% of the home price for closing costs.
- Automate your savings and reduce debt to stay on track. Treating your down payment contribution as a nonnegotiable monthly expense, deposited automatically into a dedicated account, removes the temptation to skip it.
- Plan for a multiyear timeline. Most renters need about five years to save for a home purchase. Side income, tax refunds and temporarily reducing housing costs by getting a roommate or moving in with family can shorten the timeline.
The American dream of owning your own home remains popular with today’s Gen Zers.
The number of Americans who say it’s better to own a home instead of rent or live with family rose from 48% in 2025 to 53% in 2026, the first increase since 2023, according to the Bank of America Home Buyer Insight Report released in June.
Saving for a downpayment can be an important step to achieving that goal, but it requires focus, discipline and a clear plan. Here's how to get started.
Step 1: Audit your monthly cash flow
If you haven't already, review your monthly expenses, including housing. Experts recommend spending no more than 30% to 35% of your net monthly income on rent and utilities. That leaves 65% to 70% for other bills and savings.
"You've got to understand your numbers in terms of income and expenses," said Mike Zarrelli, certified financial planner at FSA Wealth Partners, based in Rockville, Maryland. "The best thing I've done is utilize one of those budgeting software solutions like Monarch Money or Personal Capital. Is there a surplus? Do you need to adjust on the expense side of things? Or do you just need to make more money? These are questions you should ask yourself while determining your budget."
Pro tip: Add a separate line in your budget for irregular or large purchases. This gives you better context when you review your spending later. When auditing cash flow, focus on normal monthly patterns only.
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Step 2: Set a down payment goal
To get a rough estimate of what you can afford, multiply your annual gross income by 2.5. A person earning $100,000 a year, for example, could roughly afford a $250,000 home. The actual number will depend on your credit score, debt-to-income ratio, monthly income, savings and assets.
Once you have a target price, determine your down payment amount. Putting down at least 20% on a conventional mortgage helps lower monthly mortgage payments and eliminates private mortgage insurance, a type of coverage that protects the lender if you default. Other loan types, such as FHA loans, allow down payments as low as 3% to 5%. In general, a larger down payment puts you in a stronger financial position after closing.
Pro tip: Factor closing costs into your savings goal. Budget an additional 3% to 5% of your target home price to cover them.
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- How big should your down payment be? Hint: It doesn't have to be 20%
- How to buy a house with little or no money down
Step 3: Automate your savings
Set up a separate savings account dedicated to your down payment and automate deposits from each paycheck. Many employers offer split direct deposit, or you can arrange automatic transfers through your bank.
"You have to treat saving for a house as a nonnegotiable," Zarrelli said. "Setting up a separate savings account and renaming it 'house down payment fund' or something like that is the way to go but make sure it's happening automatically."
Pro tip: Create a visual tracker with the date, monthly contribution amount and cumulative progress toward your goal. It makes the target feel more tangible and keeps you motivated.
Step 4: Cut unnecessary spending
This part is straightforward but not easy. Look for expenses you can reduce or eliminate, including dining out, streaming subscriptions, travel and name-brand groceries. A few alternatives:
- Meal prep five dinners before the work week starts.
- Shop at stores that sell private-label groceries, such as Aldi or Trader Joe's.
- Replace paid streaming services with free options like Tubi, Pluto TV or the Roku Channel.
- Plan staycations instead of trips.
Pro tip: Connect your bank account to an app that identifies and cancels unused subscriptions on your behalf.
Step 5: Pay down your debt
Reducing debt improves your credit score and frees up money for savings. Two common approaches:
Debt avalanche. Pay off high-interest debt first. This saves the most money over time but requires more discretionary income upfront and more patience before you see progress.
Debt snowball. Pay off the smallest balances first regardless of interest rate. This builds momentum faster but takes longer to eliminate your most expensive debt.
"Improving your credit score, even by 20 to 30 points, can significantly impact your rate. We often advise clients to pay down debt, avoid new credit inquiries and build up reserves," Mike Gaines, senior vice president of capital markets at Charlotte, North Carolina-based Cardinal Financial said.
"I'm a numbers guy, so I prefer the debt avalanche approach, paying off the highest interest debt first rather than paying off the smallest balance first," Zarrelli said. "That said, use whatever approach you think will work best for you. What's most important is moving the ball forward rather than staying still or going backwards on your debt repayment journey."
Pro tip: You may be able to negotiate a credit card settlement with your card issuer to reduce what you owe. A settlement is likely to lower your credit score in the short term, but you can begin rebuilding immediately. It's a better outcome than defaulting and having your account sent to collections.
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Five ways to reach your goal faster
- Increase your income with side work. A night job, freelance gig or small business can add meaningful savings each month.
- Bank your bonuses and tax refunds. Deposit windfalls directly into your down payment fund instead of spending them. Live off your salary.
- Move in with family temporarily. Eliminating rent and splitting household costs, even for six months to a year, can accelerate your timeline significantly.
- Get a roommate. Splitting rent and utilities frees up more of your paycheck for savings.
- Use a mortgage calculator. Homes.com has an online mortgage calculator that can help you estimate monthly payments and factor them into your budget.
Additional considerations
How do I balance an emergency fund with saving for a down payment?
Build your emergency fund first. If an unexpected expense like a medical bill wipes out your savings before you close, the entire plan falls apart. Once you have a solid cushion, redirect your focus to the down payment.
How long will it realistically take?
Zarrelli said that it takes most renters five years to save for a new home. Here's an example based on a $400,000 home purchase goal.
"If you wanted to [make] a 5% down payment, that's $20,000 and then closing costs, which is another $10,000," Zarrelli said. "That's $30,000 right there. To buy a $400,000 home, unless you have a lot of cash flow, most people can't save that in a year or two. That's why it is safe to say five years, saving about $5,000, $6,000 or $7,000 a year. That's the goal."