How to Save for a Down Payment on Your First Home

As exciting as it is to buy your first home, coming up with the down payment is another story. In fact, even if you have good credit and a great job, freeing up money to go to settlement can be overwhelming. If you’re ready to buy but don’t have enough in savings, here are four ways to save for the down payment for your first home.

Determine Your Budget

The first step, and probably the most important, is knowing how much home you can afford. Just because the numbers look good on paper doesn’t mean you can comfortably afford it. The down payment depends on both the purchase price and your financial picture. Before putting in an offer, or even touring for that matter, research the average cost of the type of home you’d like to buy. Depending on where you live, you might qualify for federally backed programs that require as little as 3 percent down. Keep in mind that in some cases, 20 percent could be required for the down payment. It’s also important to mention that the more you initially put down, the lower your monthly mortgage payment could be.

Calculate Your Debt-to-Income Ratio

Even if you weren’t looking to buy, you still need to know your debt-to-income ratio. Look at your monthly income after taxes to determine how much you spend on recurring expenses. These include housing, credit cards and student loan payments. Write down how much is going out each month and how much is left over for discretionary use. Your total housing expense shouldn’t account for more than a third of your total income. When applying for a home loan, lenders look at how much you earn, your total amount of debt and then divide that figure by your gross income. Ideally, it shouldn’t be higher than 40 percent. Many lenders prefer to see that even more at around 30 percent.

With that said, you need to see where you can cut corners and decrease your debt. If you’re planning on returning to college, instead of paying out of pocket, you might want to apply for a student loan through a private lender. This will free up money you have on hand for your down payment and increase your credit score once you start paying it back. In addition to cash flow, lenders also look at how you manage your money. Having a good payment history can make the approval process a lot easier.


Canceling unused monthly subscription services or downsizing your smartphone are not the only ways to save money. If possible, you should also consider downsizing where you currently live. You can look for a less expensive place where you can bank the extra money. Many times, people spend money on amenities they’re not even using simply because they’re in the building. You could also consider moving back in with your family until you have enough money to put down. You can still contribute to the monthly bills there while saving several hundred, if not more, each month.

Match Savings with Spending

This tried-and true method is a great way to gauge what you can truly afford. Every time you make a purchase, you transfer that same amount into a savings account. The idea is if you can afford to buy it, you should also have that same amount available in reserve in your account. If you can’t match the purchase price, you shouldn’t buy it. Most people rely on credit card to make expensive purchases and then pay it back over time. Unfortunately, when you’re saving for a down payment, it’s better to only use cash, so you’re not increasing your monthly debt-to-income ratio.

Justin Weinger