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9 Ways to Save for a Down Payment on a House

Make your homeownership dreams come true with the right savings strategy.

Homeownership is an American dream for many. A home is a big purchase, though, which may make saving for the down payment feel out of reach. But there are ways to bring that dream closer to reality.

 

How much do you need for a mortgage down payment?

This depends on several factors, including the home’s purchase price and the requirements of the mortgage program you’ve chosen. In the old days, many mortgage lenders had a 20% down payment requirement, but there are more home loan options today, including conventional loans and government-backed loans such as VA, USDA, and FHA loans. All have different down payment requirements.

Your required down payment may also be determined by your credit score. For example, a high credit score could drop the required down payment for an FHA loan by as much as 5%. But know that if you put less than 20% down, you may have to pay for private mortgage insurance. And don’t forget about closing costs, moving expenses, homeowners insurance, and other costs you’ll need to cover.

 

Still learning the mortgage language? Get up-to-speed by reading the definitions of these 14 basic mortgage terms.

9 Ways to save for a down payment

The earlier you start saving, the quicker you’ll reach your goal of homeownership. Here are things you can start doing today.

 

1
Trim expenses out of your budget

Most people are surprised when they start totaling up their everyday expenses for things like take-out lunches and dinners. Then when you add in the monthly cost for subscription-based services like cable and internet, movie or music streaming, gaming services, and others, your opportunity to save becomes even bigger. Can you go for a year with just one streaming service? How often do you watch all those cable channels? Do you really need ‘unlimited’ everything? When did you last use that gym membership? And know that you’ll save big when you shop grocery smart and eat at home.


2
Change jobs, ask for a raise, or pick or up some side work

Today’s competitive market rewards people who advocate for themselves. While the thought of asking for a raise or searching for a higher-paying job can feel daunting, it can pay off, especially if you know your skill set is worth it. You could also consider taking on extra work; it’s never been easier to moonlight to earn extra cash. Take on a weekend service job or dash into a delivery gig, then watch your savings grow.


3
Rent out a room or a parking space

Savings opportunities may be sitting right in front of you. Adding a roommate could cut your rent significantly. And if your living arrangement comes with a dedicated parking space, ask your landlord if you can rent it out and park somewhere else instead.


4
Sell stuff you don’t need

Online services like OfferUp, Craigslist, eBay and Facebook Marketplace make it easy to sell things you aren’t using. By selling your old electronics, clothing, sports equipment, furniture, and even jewelry, you can clear the closet and put money in your savings account. When selling items, always think about safety, though. Meet in a public place, bring a friend, arrange for instant payment, and trust your instincts.


5
Don’t buy new

This requires some real self-control, but savings add up more quickly when you’re not spending. So, drive that car another year and save the monthly payments. Stick with your existing phone for another year, wear last year’s outfits, and visit the library instead of the bookstore. Even little things add up.


6
Put a temporary hold on your retirement savings

The keyword here is ‘temporary,’ as in one or two years at most. Because it’s a long-term investment, your retirement savings benefit from steady deposits over time. But your overall wealth can also benefit when you build home equity; it’s one of the best reasons to own instead of rent. If putting part of your retirement savings into a savings account will help you reach your home-purchasing goal within a year or two, consider this as an option.

While first-time homebuyers can withdraw up to $10,000 for a down payment from an IRA without penalty, remember that this $10,000 could end up being worth much, much more when you retire because of compound interest. Be cautious when considering this.


7
Save windfalls, don’t spend them

Holiday bonuses, commission checks, tax refunds, severance pay, and even birthday money can go directly into your down payment savings fund. The same holds true if you find yourself with a pay raise, an inheritance, or an insurance settlement. Extra money can be a wonderful surprise; let it put you closer to home ownership.


8
Reduce your debt

When setting their rates, mortgage lenders consider your debt-to-income ratio. If you have a lot of debt, you may be required to make a larger down payment. There are two popular ways to reduce your overall debt—the snowball and the avalanche method. Choose the one that makes the most sense to you.


9
Automate your savings

When you automate your savings plan, you set yourself up for success. Many banks and credit unions allow you to automatically distribute your paycheck into a savings account or set up a recurring transfer from one account to another. This can be one of the best ways to make sure you prioritize your down payment savings goal.


Where to save your down payment

When you’re saving for something special, such as a down payment for a home, it’s important to tuck those savings into a separate account, where it’s protected from accidental spending. You have options:

 

Savings account

A basic savings account is a no-brainer. If you can find one that earns high interest or pays substantial dividends, even better. Since you’re saving for a large purchase, you’ll likely be able to meet the minimum balance requirements of a premium savings account (which reaps higher returns) as your savings grow. Just remember that you can’t write a check from a savings account, and you’re limited to six transfers or withdrawals per month.

 

Money market account

A type of savings account, money market accounts typically have higher minimum balance requirements, and have been known to earn higher returns. That’s because the money is invested in short-term debt issued to the government and U.S. companies. Due to recent events such as the global pandemic, however, money market rates are currently similar to basic and premium savings rates.*

Money market accounts still offer one advantage over savings accounts—you may be able to write a check or use a debit card, although you’re still limited to six transfers or withdrawals per month.

 

Certificate account

Like money market accounts, certificate accounts are historically higher return with higher minimum balance requirements, but rates are currently low.*

Unlike money market accounts, you agree to leave your money invested for a fixed term, at a fixed rate. For example, at Alaska USA, you can choose between one month and five years. The longer the term, the higher the rate of return. Certificate accounts are best suited for short-term savings goals like a home since tapping into your money before the term ends incurs withdrawal penalties. A savings strategy called certificate laddering can help you benefit from high returns while maintaining cash flow.**

 

*For current rates at Alaska USA, see our rates page. For the purpose of this article, rates were accessed on 2/3/22.

**There are no qualification or eligibility criteria for Alaska USA members. Minimum deposit required is $500. Maturity periods vary from 30 days to 60 months. Certificates are subject to early withdrawal penalties.


Roll out your welcome mat

The process of saving for a down payment will take time and hard work, but every little bit helps. And it will all be worth it when you see that Sold sign go up.

Once you’ve met your down payment goal, congratulations! You’re one big step closer to the home of your dreams and ready to apply for a mortgage. The home loan experts at Alaska USA Mortgage Company would be happy to help answer your questions and walk you through the application process. Schedule an appointment with a home loan expert.

 

Ready to open a savings account?

For basic and premium savings with Alaska USA, you can open an account online. Alaska USA members can open money market and certificate accounts any time by following these instructions.

Not a member? Not a problem!

There's never been a better time to become a member. Get in touch today!

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800-525-9094

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memberservice @alaskausa.org

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