How to Save for a Down Payment

June 1, 2022 min read

Although few prospective home buyers have enough cash on hand to buy a property outright (which is where home mortgage loans come in), lenders still expect you to have enough money to make a down payment upfront. The down payment demonstrates to the lender that you have the resources to make monthly mortgage payments on time, and the larger the down payment, the less risk you represent as an investment. That can mean lower mortgage rates, and (at high enough percentages) may even eliminate the need to purchase mortgage insurance.

Unfortunately, because down payments are represented as a percentage of the total purchase price (generally anywhere from 3% – 20%), they tend to be fairly hefty in their own right.

How to Save for a Down Payment: 9 Tips

With a clear financial goal in mind, you may be surprised by the various ways you can save money and increase your cash flow. Here, we share a few of our favorite tips to help you save money for a down payment on the home of your dreams.

Cut Back on Unnecessary Expenses

If you want to save for a house, your first step should be to take an honest look at where your money is currently going. Eliminating or reducing unnecessary purchases can not only help you save for your down payment, but can also make it easier for you to meet ongoing mortgage payments by establishing positive spending habits.

Where should you start? There are many options. Consider reducing how often you eat out, or take a break from making impulse purchases online. You may also find that you can live without certain streaming services or unused gym memberships (there are plenty of ways to get exercise without paying to use someone else’s equipment). Obviously, everyone’s expenses are different, but if you can find areas where you could trim back, any money you save can be put towards your down payment.

Pay Off Your Debt

Make things easier on yourself by clearing out as much debt as possible before you take on a mortgage. High-interest debt, like credit card debt, can eat up your finances and make it extremely difficult to save for a down payment - to say nothing of keeping up with monthly payments.

Before you meet with a lender, do what you can to eliminate any outstanding debt you may be carrying. Pay off your credit cards if possible, or at least consider refinancing your debt to secure lower interest rates. When it comes to debt, every dollar you can chip away means more money you can put towards your home.

Make Extra Money on the Side

If your job isn’t bringing in enough cash for you to save up for a down payment, consider other ways you could be making some extra money. Today’s gig economy makes it easy to turn free time into money-making opportunities, and online marketplaces allow you to sell crafts and other creations to customers around the world.

If all else fails, then taking a second job may be the answer. A seasonal position or part-time employment can be a major boon, especially when that extra source of income goes directly into your savings. And perhaps best of all, you don’t need to feel obligated to continue working your side hustle once you have enough for your down payment.

Liquidate Assets

Are you a hoarder? Even if you aren’t, there’s a good chance that you have at least some possessions that you don’t use or care about. Forgotten exercise equipment, old collections, even unused wardrobe items can mean a lot of extra cash in your pocket if you’re willing to sell them.

If you want fast cash with a minimum of hassle, then a yard sale may be the way to go. On the other hand, if you’re looking for a larger base of potential buyers, then an online auction site or marketplace will give you a much bigger audience to sell to. And who knows? Those items you’ve been hauling around since childhood may just be worth a significant amount to the right buyer.

Use Automation

If you were handed an additional $1000, would your instinct be to drop it into your savings account, or to go spend it? If you’re in the ‘spend it’ group, then automating your savings might be a good idea. Go through your bank to set up an auto-deposit directly into a separate savings account for a certain percentage of your income. This way, you won’t have to worry about your down payment money finding its way into other purchases.

If you’d really like to ensure that your money stays untouched, then setting up a savings account at a different institution from your primary bank can put another barrier between your cash and your desire to spend it.

Save Your Windfall Money

Occasionally, you might unexpectedly come into money outside of your regular income channels. This ‘windfall’ money may be an inheritance, work bonus, investment return, cash prize, etc., and can be a significant advantage if you’re trying to fill a savings account to make a down payment.

A windfall doesn’t have to be a large amount of money to make a difference. If you get birthday money every year from a relative, or if you receive a modest tax return, then redirecting those checks to your down payment will help you reach your goal that much quicker.

Ask for Help

Purchasing a home can be one of life’s most important milestones. As such, there’s no shame in asking for a little help with the down payment. If you have parents or other relatives who are financially secure, they may be willing (or even happy) to chip in a little to help you become a homeowner.

If you have friends or relatives who want to help but may not have the funds to contribute to a down payment, there may be other ways they can assist you. Saving money by moving in with a loved one for a short period of time can be extremely effective, as the income that would have gone towards rent payments can be redirected into your savings.

Research Down Payment Assistance Programs

When you buy a home, you don’t necessarily have to do it alone. Down payment assistance programs exist that can help you fund your purchase, either through grants or low- to -no-interest loans. Research FHA grants and other government assistance programs, and check with your employer to see if they offer down payment assistance as an employee benefit.

Want to know how to save for a down payment? The best advice we can offer is that every little bit helps. So cut your spending wherever you can, consider additional sources of income, and always keep your eye on the prize. By fully dedicating yourself to your goal, you might be surprised at how quickly you can save enough for your down payment, and turn the dream of homeownership into a reality.

Want to learn more? Check out the PennyMac Mortgage Calculator to get an idea of how much you can borrow, and contact one of our professional Loan Officers today.



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