How to Save for a Down Payment

Thinking about buying a home? First things first, you’ll need to save money for a down payment.


What is a Down Payment?

Let’s break it down to the basics. A down payment is the money you bring to the closing table. You can borrow money from a mortgage company, like USA Mortgage for example, in the form of a home loan or mortgage, but a portion of the total cost will come directly from your pockets.

Look at it like this: the down payment serves as an insurance of sorts for your local lender. When you hand over a check from your own account, it means you’re officially invested! That tells us you are someone who we can trust to make payments on your monthly mortgage year after year. We love to work with people like you!

Saving for a down payment not only proves yourself to the lender, but it also helps set your own mind at ease. Fun fact: a sizeable down payment REDUCES your monthly house payment. This allows you to choose a shorter mortgage term so you can say “see ya!” to this debt sooner rather than later.


How Much Should I Save for a Down Payment?

No one likes debt. Car loans, student loans and credit card debt can take up a big part of our income, leaving us with less money for the things we really want to use it on.

The big question is, how much should you save? It’s different for every buyer, which is why you need to work through the process below to determine what will work best for you. Here are a few ways to determine how much you should be saving:

  1. Determine how much you can afford each month

A good rule of thumb is to spend no more than 25% of your monthly pay (after taxes) on your mortgage payment. If you use too much of your budget on your monthly payment, that will leave you unprepared if any emergencies come up. We suggest that 25% (or even less) is the perfect amount.

Want to find out what your 25% is? Figure out how much money you (and your spouse, if applicable) bring home each much. Multiple that number by .25 to find your monthly mortgage amount.

  1. Use your monthly mortgage payment to arrive to a total mortgage amount.

When it comes to deciding which mortgage you choose, we recommend a 15-year-fixed rate, which is guaranteed to save you SO MUCH MONEY compared to the traditional 30-year option. Learn more about the differences here

  1. Spend some time on our mortgage calculator.

It helps to input different numbers into the home value and down payment section with the goal of hitting your preferred monthly payment. Talk things over with a spouse, friend or family member and make notes of your options. This is great knowledge to have as you begin to save for a home.

  1. Aim for between 10% and 20% for your down payment.

Decide which percentage works best for you. If you choose 20%, this can lower your interest rate, opens the option for a 15-year mortgage and help you avoid private mortgage insurance (PMI).

Want to know how this number was calculated? Multiply the total mortgage amount by the percentage you are putting towards a down payment. That is your savings goal, get ready to start putting some money in your piggy bank!


What Other Costs Should I Consider When Saving for a Down Payment?

A down payment isn’t the only home-buying cost you need to think about, keep ready to find out what else you should be saving for!

  1. Private Mortgage Insurance (PMI)

PMI is a fee that is added to your monthly mortgage payment if you put less than 20% on your home. You can expect PMI to add about $50 for every $100,000 you spend on a house. Learn more about Private Mortgage Insurance here.

  1. Appraisal and Inspection Fees

In order for your lender to sign off on your mortgage, you’ll need to have your new home appraised and inspected before you close. Each of these items can cost a little bit over $300, on average.

  1. Closing Costs

A lot more work than you think goes into signing on the dotted line. Unless the seller agrees to pay closings costs, you’ll be responsible for feeds between 2% and 5% of the total mortgage value.


How to Save for a Down Payment

Start with a smaller number.

If the grand total you need to save intimidates you, just divide it up! First, decide when you would like to buy. Take the number of months away from your goal date and divide your needed down payment by the number of months you must save.


Creative Ways to Save for a Down Payment

If you think that the amount you are supposed to saved is too high, don’t panic! Give yourself a little more time to save and be on the lookout for different ways to save. Here are some suggestions:

  1. Set up a Down Payment Fund

Once you figure out the amount you should save each month, create a budget to track your saving and create a Down Payment Fund

  1. Throw extra money towards your Down Payment Fund. Look for ways to slim down your budget so you can put more money toward your down payment. Here are a few ideas:
  • Cut cable
  • Pack your lunch
  • Make coffee at home
  • Cancel gym memberships
  • Work overtime
  • Start a side business
  • Get a second job
  1. Store your down payment savings the smart way


There will come a time where you see all the money you’re saving and want to take a spontaneous, expensive trip. Trust us, it will happen. To protect yourself from the temptation, don’t store your down payment money in your regular bank account. We recommend a separate savings account or a money market account instead.


Now you have all the information, start saving for that dream home you’ve been thinking about! Already have enough money saved up, ready to buy? Search for a local USA Mortgage lender near you to start the homebuying process.

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