Saving for a down payment is often the biggest obstacle to buying a home. The good news: with a clear target, a dedicated savings strategy, and the right account, you can build that down payment faster than you think.
How Much Do You Need for a Down Payment?
The required down payment depends on the loan type:
- Conventional loan: Typically 5%–20%. Putting down less than 20% means you will pay private mortgage insurance (PMI).
- FHA loan: 3.5% if your credit score is 580 or above; 10% if your score is 500–579.
- VA loan: 0% for eligible veterans and active-duty military.
- USDA loan: 0% for eligible rural and suburban homebuyers.
- Conventional 97 / HomeReady / Home Possible: 3% for qualifying buyers.
On a $350,000 home, a 5% down payment is $17,500. A 20% down payment is $70,000.
Step 1: Set a Specific Target
Decide on the price range for the home you want to buy, then calculate your target down payment amount. Add closing costs (typically 2%–5% of the purchase price) to your savings goal. On a $350,000 home, plan to save at least $17,500 to $35,000 for a down payment, plus $7,000 to $17,500 for closing costs.
Step 2: Choose the Right Account
Keep your down payment savings separate from your everyday checking account to avoid accidentally spending it. Good options include:
- High-yield savings account (HYSA): The best choice for most people. No risk, FDIC-insured, earns significantly more than a traditional savings account.
- Money market account: Similar to HYSA, sometimes with check-writing privileges.
- Short-term CDs or CD ladders: If you have a specific timeline and won’t need the money early, CDs can lock in a competitive rate.
Avoid investing your down payment in stocks or other volatile assets if you plan to buy within 1–3 years. Market downturns can wipe out your progress at the worst time.
Step 3: Automate Your Savings
Set up an automatic transfer on every payday from your checking account to your dedicated down payment savings account. Treat this transfer like a non-negotiable bill. Even $500 per month becomes $6,000 per year — plus interest.
Step 4: Cut Spending or Increase Income
To hit your goal faster, identify two or three expenses to reduce temporarily. Common options include eating out less, pausing subscriptions, or delaying a vacation. On the income side, consider a side gig, overtime, or selling unused items.
Every extra dollar goes directly into your down payment fund.
Step 5: Use Windfalls Strategically
Direct tax refunds, work bonuses, cash gifts, and any unexpected income straight to your down payment account. A single $2,000 tax refund can meaningfully accelerate your timeline.
Down Payment Assistance Programs
Many states, counties, and cities offer down payment assistance (DPA) programs for first-time buyers or low-to-moderate income buyers. These programs provide:
- Grants that do not need to be repaid
- Second mortgages with deferred repayment
- Forgivable loans if you stay in the home for a set period
Search the HUD website or your state housing finance agency for programs in your area. Many buyers leave this money on the table because they do not know these programs exist.
How Long Will It Take?
If you need $30,000 for a down payment and save $1,000 per month, it takes 30 months — about 2.5 years. Saving $1,500 per month cuts that to 20 months. Receiving a $5,000 windfall along the way cuts it to roughly 25 months at $1,000/month.
Roth IRA as a Down Payment Tool
First-time homebuyers can withdraw up to $10,000 in Roth IRA earnings penalty-free (though taxes may apply if the account is under 5 years old). You can always withdraw your Roth IRA contributions — not earnings — at any time, penalty-free. This makes a Roth IRA a dual-purpose account for first-time buyers saving for retirement and a home simultaneously.
Bottom Line
Saving for a down payment is a matter of setting a clear number, parking the money where it earns the most without risk, automating contributions, and staying consistent. Look into down payment assistance programs before you assume you need to save the full amount yourself — many buyers qualify for help they do not expect.