For most Americans, the biggest hurdle to homeownership is saving up for a down payment. If you pay anything less than 20% of the home’s purchase price as a down payment, you’ll need to pay for private mortgage insurance (PMI), which adds to the costs.

If you’re wondering how to save for a house, read on for a list of tips you can use, along with a clear idea of how much you need to save to buy a home.

11 Tips for Saving Money for a House

Whether you already have some money saved up or are still wondering how to save for a house, you can use the tips we’ve listed below to boost your savings.

1. Create a Budget and Track Expenses

You’ll need to make a budget before you can start saving for a home. Without a budget, it won’t be possible to know how much you can put aside each month for a down payment.

Calculate your total income for the month and include any income from your partner or spouse. Next, factor in your expenses. Calculate how much you spend on recurring expenses like groceries, utilities, rent, car loan payments, and credit cards.

This will give you a clear idea of how much money you have left over each month to put aside for the down payment.

2. Reduce Monthly Expenses

Pay close attention to how much money you’re spending and identify areas where you can temporarily reduce spending. Here are a few suggestions:

  • Cut the cable and subscription services you aren’t using.
  • Switch to buying generic products instead of brand names.
  • Reduce your budget for eating out and entertainment.
  • Cancel vacations or downgrade your travel plans from a week, to just a weekend.

There are many other creative ways to curb your spending once you pay close attention to what you’re currently spending your money on.

3. Increase Income

Another way to get money for a down payment for a house is to increase your income. Ask for a raise at work or try to switch to a higher-paying job if possible.

If none of those are possible for you, look for ways to supplement your income through side gigs. Freelance on weekends, take up a part-time job temporarily, sell unwanted things in your home, drive for a rideshare or food delivery service, or find other ways to boost your income so you can save money consistently.  

4. Automate Savings

If you tend to spend money that’s in your account, you may want to remove the temptation by automating your savings. Start by deciding how much you want to put aside each month for the down payment.

You can then set up an automatic withdrawal from your bank account into a separate high-yield bank savings or money market account each month. When the money is less accessible, you’ll be less tempted to spend it. Be sure to schedule the withdrawal on a date when you’ll normally have enough money in your account, such as on your payday, to avoid overdraft fees.

5. Save Windfalls

Any time you get access to extra cash, put it aside in your down payment fund. From Christmas cash gifts and tax refunds to bonuses from work, use all your windfalls to save for your home. While it may not seem much, this can easily bump your savings up by $1,000 to $2,500 each year.

6. Pay Off Debt

When you apply for a mortgage loan, there are a number of things that a mortgage lender will look at to determine your eligibility.

If you have a high debt-to-income ratio (DTI), it may be difficult to qualify for a mortgage. Before you start saving for your home, take time to pay down debt. Focus on debts with a higher interest rate, such as credit cards and personal loans.

Once your debts are paid off, you’ll free up more cash to put aside for your down payment.

7. Explore Assistance Programs

If you’re wondering how to save for a house quickly, check to see if you’re eligible for assistance programs. Many banks have programs of their own to help home buyers. Here are a few other assistance programs to explore:

  • FHA Loans: FHA loans are backed by the government and offered by FHA-approved lenders. If you qualify, you’ll only need a 3.5% down payment to buy a home. FHA loans are also a viable option for those with bad credit since you can qualify, even if you have a credit score in the 580 range.
  • VA Loans: If you’re an active-duty military member or a veteran, you may qualify for a VA loan at a favorable mortgage rate. VA loans require zero down payment.
  • USDA Loans: The U.S. Department of Agriculture and Rural Development offers USDA home loans with zero down payment if you purchase in a qualifying region or neighborhood.

Other than the loan options listed above, you may also want to check the programs offered by the Department of Housing and Urban Development (HUD) as well as first-time homebuyers' savings programs offered by other states.

8. Hold Off on Retirement Savings Temporarily

While it’s very important to save for retirement, when you’re planning to purchase a home, it’s okay to temporarily hold off on retirement savings. Divert the money you put in your 401(k) account to your down payment fund.

Keep in mind that this should only be a temporary measure to speed up your down payment savings. Once you purchase your home, you should start saving for retirement again so you don’t miss out on long-term growth.

9. Add a Home Fund to Your Wedding Registry

A growing number of couples are asking family and friends for cash instead of wedding gifts to achieve their savings goal. You can add a “home fund” to your wedding registry to jumpstart your down payment savings.

Homeownership is a meaningful milestone in the life of new spouses, and setting up a home fund as part of your wedding gift registry can be an unconventional but effective way to achieve that goal.

10. Rethink Your Transportation

Your car is likely one of your biggest expenses each month with auto loan payments, insurance, gas, and maintenance. If you’re willing to make a significant change to save up for a down payment, consider downsizing to one car instead of two or more.

If you live close to work, consider temporarily getting rid of the car and switching to carpooling, walking, or biking. Another benefit of not having a car is that you can rent out your parking space to someone else for extra money.  

11. Downsize or Get a Roommate

Reduce your current housing costs to save for a home of your own, either by downsizing to a smaller place, getting a roommate, or moving in with family, temporarily.

Moving back home with your family for no or little rent can be a major lifestyle change but can allow you to save as much as $18,000 a year if you’re currently paying $1,500 rent. Getting a roommate will immediately cut your housing costs in half. Either of these options is worth the short-term sacrifice.

How Much Should You Save For a House

Now that you have several ideas for how to save for a house, it’s important to figure out how much you actually need to save. You should have enough money saved to cover your down payment, closing costs, moving expenses, and the cost of any new furniture or initial repairs/upgrades.

Down Payment

The down payment for a home can be anywhere from 0% to 20% of the purchase price. If you qualify for a VA loan or a USDA loan, for example, you won’t need any down payment. However, most borrowers will need at least 3% to 5% for a conventional loan.

Closing Costs

Closing costs on a mortgage can be 3% to 6% of the loan amount. For example, if you borrow a mortgage of $300,000, your closing costs can be $9,000 to $18,000.

While closing costs don’t include the down payment, you may be able to negotiate them with the seller. If you want to make your home more affordable, negotiate with the seller to cover these costs as a part of seller concessions.

Moving Costs

You’ll also need to account for moving costs when saving for a house. The average cost for a local move is $1,250, and $4,890 for a long-distance move.

Be sure to get quotes from multiple moving companies to compare costs. You can also ask friends and family for help moving to save money.

Ideal Savings Plans and Accounts for Saving for a House

The money you save for a down payment should be able to earn you a return, be stable in terms of carrying very little to no financial risk, and easily accessible within 1-2 business days, when needed. Instead of keeping it in your checking account, here are a few options to choose from that fit those criteria.

High-Yield Bank Savings Accounts

A high-yield savings account will allow you to earn more interest while keeping your down payment safe and easily accessible. Some of these accounts pay as much as 5.50% APY, which is as much as 12 times the national average APY for savings accounts. Nearly all high-yield bank savings accounts carry FDIC insurance coverage.

Certificates of Deposits (CDs)

If you’re not planning to purchase a home in the near future, a certificate of deposit (CD) is also a reliable and safe option to consider. You can deposit money in a CD for a fixed period of time, which can be for just a few months or up to several years, to earn interest.

Because they carry a fixed term to maturity, CDs offer a higher interest rate, which is currently as high as 5.40% APY, and the interest compounds over time. These APYs are typically a bit higher than most high-yield savings accounts and money market accounts. However, if you withdraw the funds before the end of the term, you may have to pay a penalty that’s equivalent to 3 months’ worth of interest on the CD.

Money Market Accounts

Money market accounts (MMAs) that are issued by banks and credit unions work like a high-yield savings account but may have a minimum deposit requirement. However, they usually offer better interest rates compared to traditional savings accounts. MMA accounts also offer the ability to write checks, which makes them a good option when you want to purchase your home.  

Money Market Mutual Funds

Money Market Funds are a kind of mutual fund that invests in highly liquid, very short-term (3-12 month) fixed-income (bond) instruments. While they sound very similar in name to Money Market Accounts (MMAs), that’s where their similarities end. In fact, a money market fund is not the same as a bank or credit union MMA–when it comes down to it, they work very differently. 

A money market mutual fund is a security that is sponsored and issued by a large investment firm or mutual fund company and, contrary to popular belief, it’s not FDIC insured. Because they are invested in fixed-income securities that are not backed by any bank or credit union, they have no guarantees for their invested principal. 

However, they are structured to maintain a consistent share price of $1.00 every day so that they can always be purchased at $1 per share and then redeemable at $1 per share–they do not seek any capital appreciation, just the income earned from the bond securities they hold. 

They are subject to the laws and regulations set forth by the U.S. Securities and Exchange Commission (the SEC), and because of their constant $1.00 per share value, they are considered extremely low-risk on the investment spectrum.

No matter which savings instrument you choose to put your down payment on, it’s certainly advisable not to subject these hard-earned dollars to much, if any, risk of financial loss. Since these funds may be needed for your home purchase in as little as 30 days should you find a home you want to make an offer on, your investment time horizon for this money is extremely short, so you will want to place it in something that keeps up with inflation, yet is very stable and liquid, so you know that 100% of those funds will be there for you to use when the time comes.  

If your home purchase is more than 2-3 years away, you may consider taking a small portion of your down payment savings and placing it into something a little higher risk in anticipation of a little higher return, but it is safe to say that placing this money into stocks, cryptocurrency or other high-risk investments is certainly not advisable, because of the ever-present chance that these investments may take a downturn just shortly before you need these funds for your home purchase.

Saving For a House is Possible

If you’re wondering how to save for a house, start by making a plan. Figure out how much you need to save for a down payment and account for closing costs and moving costs. Keep in mind that you should also have a fully funded emergency fund before you buy a new home to cover your monthly mortgage payment or other expenses in case of an unexpected life event.

When it comes to saving money, start by checking if you qualify for any assistance programs, which may have a 0% to 3.5% down payment requirement. Look for ways to bring in extra income and reduce your expenses. Consider short-term sacrifices to save more money, such as downsizing, living with a roommate, and getting rid of your car temporarily.