4 Steps to Saving for a Down Payment

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Down Payment

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Saving for a down payment on a house can be a daunting prospect. It can feel nearly impossible to someone living paycheck-to-paycheck. But there are simple steps to make saving $10,000 or even $50,000 seem much more manageable.

1. Get Motivated and Build Up that Down Payment


Potential buyers should look at houses for sale on real estate websites and visit a few open houses for inspiration and to gain a greater understanding of current home values. Buyers can use an online calculator to determine the actual cost of owning a home, including how the size of the down payment affects the monthly mortgage costs.

This gives them a target amount to save to get the home they desire, with a payment they can afford.

Some may want to subscribe to a home decorating magazine or seek out interior design trends online. It’s easier to plan and save with visions of beautiful houses and decorating ideas in mind.

If potential buyers expect their mortgage payments to be higher than they’re paying in rent, they should set aside the difference each month. Practicing paying a mortgage helps buyers prepare for living on less. Plus, they can use the extra to pay off debts or save for their down payments.

2. Pay Off Debt


Other than the pride of saving, there’s no point in putting money in a low-interest savings account or money market while paying huge late fees and high interest rates on credit card debts or loans. Smart consumers should pay these off as soon as possible, starting with the debt charging the highest interest.

Prospective buyers could also shift their debt balances to lower-fee credit cards to limit their money wasted on interest payments.

Some savers might even want to cut up credit cards to avoid the temptation of overspending. They should keep enough credit cards to prove to their future lenders that they can get credit.

Once the card balances are paid off, prospective buyers should put the amount they were spending on interest and fees each month right into the bank as savings.

3. Move Money Into Savings


People who want to save a down payment should open a savings account strictly for their home buying costs. If they set up automatic deposits from their paychecks or transfers of money from their checking accounts into savings accounts, money will start adding up without requiring them to remember to visit or call the bank, or make transfers online after every pay period.

Prospective homebuyers should start with an amount that seems slightly out of their comfort zones. For example, if $50 per week seems like a manageable amount to save, try transferring $60 weekly. Chances are, future homebuyers won’t miss the $10. If relatives give cash as gifts for birthdays and anniversaries, potential home buyers should immediately put that money into the house fund, too.

4. Examine Every Expense


People trying to save money should also get a handle on where they’re spending their money. For at least two months, they should write down where every dime goes. Money logs make it easy to recognize silly spending patterns: buying bottled water at the gym every day, paying $60 for a simple hair trim that didn’t require major styling, paying for high-priced parking or buying rounds of drinks at the bar.

Many people could do some fairly painless trimming while ignoring other savings advice that may sound unbearable:

  • If bringing a bag lunch every day seems like torture, no one has to do it. But maybe bringing lunch once per week or buying just a sandwich and bringing along yogurt and an apple would be acceptable. Soda drinkers could buy a case at the grocery store instead of spending $1.50 daily buying drinks from the office vending machine. While this might not seem worth the trouble, $1.50 per day adds up to nearly $400 each year.
  • Examining data, voice and text use on cell phones can reveal patterns of wasted money. If month after month you are dramatically under the plan allowance on phone calls and paying overage fees for data use, you might be able to find a better plan.
  • Savers can cancel subscriptions for rarely used subscriptions such as magazines, newspapers, cable channels and online game subscriptions.
  • Nix unused gym memberships and opt for free exercise alternatives including running outside, taking long walks or streaming free workout programs.

Saving a big down payment doesn’t have to be intimidating or spoil all the fun in life. Most people can save funds just by paying down their credit cards, pretending they already pay a mortgage and closely examining their spending to look for bad habits or things they don’t really need.


Are you currently saving to buy a home? What ways are you using to save for a down payment? How do you stay motivated to save for that purchase?


Photo courtesy of: James Thompson

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John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.

Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.

Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.

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  • Tara @ Streets Ahead Living says:

    I would add that make sure the money you’re saving is in LIQUID form. Do not invest it! Nothing worse than putting $10,000 in an investment from your house fund and then when you’re ready to buy a house, that invested money lost value.

    • John says:

      Great point Tara. I would keep it as liquid as possible and earning as much as possible, though that’s next to impossible these days.

  • Mortgage Free Mike says:

    When I am saving for something special, I always put a picture on my fridge to remind me.
    In addition, whether you are saving or paying off debt, I think it’s helpful to write down every expense. It may seem OCD, but most people swipe their credit cards without a second thought on small purchases that really add up.

    • John says:

      That’s a great idea Mike! I’ve done the same thing with vacations, so it would work as well when saving for a house.

  • kathryn says:

    You also need to get serious, if saving for a deposit is important to you.
    If possible, take on a second job or do as many hours as possible with your current one.This will allow you to get rid of your cable package, because you won’t have time to watch it any ways. 🙂

    The faster you can save it, the better.
    If you take too long, you risk house prices increasing, and thus requiring a larger deposit.
    You will also save money by not paying rent any more.

    • John says:

      Completely agreed Kathryn. I say save as much as you can and as quick as you can so you can put yourself in the best position possible.

  • MonicaOnMoney says:

    I wish I had saved for a down payment, instead of paying $150 a month on PMI! Great advice for anyone considering buying toay.

  • Pauline @ Reach Financial Independence says:

    When I was saving for a downpayment I was putting almost as much as the mortgage repayment would cost, and doing that for a few months made sure I would be able to afford it once buying the place.

    • John says:

      That’s a great way of handling it Pauline. It can also show you whether or not you can really afford the place or not.

  • Alice @ Earning My Two Cents says:

    I have house fever and am trying to calculate how much of a down payment we need and how to save for it so this is really timely. We need to clean up some debts and then throw as much as we can to savings!

    • John says:

      We really want a new house as well, but it’s not on the table for us at the moment. Best of luck on it, especially with getting the debt taken care of.

  • says:

    I’ve also heard a tip that if you’re saving for a down payment, it would be a good idea to open a short term CD ladder. This will get you a little better return than just a normal savings account.

  • Mr Ikonz @ Project Ikonz says:

    I’ve just become debt free and already have two investment properties. i’m now having a look at buying another one this year. Without having a plan, building online savings and reducing debt to zero, property investing in Australia is almost impossible!

    Some great tips here for young players.

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