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How to Save UP for a DOWN Payment

We all want the safety, security, and convenience of a good mortgage on a new home. You’ve done your homework. You know you can afford the monthly rate because you’ve budgeted your expenses carefully. But what about the down payment? This up-front lump sum expense, typically between 3 and 5% of the purchase price, can easily be thousands of dollars out of your pocket. This is a non-trivial expense for most people and can cut significantly into your savings. How can you best save up and afford it?

The most simple solution is to have the money already. When you feel you are at the stage of your life where you’ll soon be settling down and buying a home, start setting aside a small amount each month. By the time it’s your turn to sign on the dotted line, you’ll have saved your way to a good chunk of the down payment without even trying. For some people, this is less reasonable and the solution can’t be “just save money.”

Start by looking at your complete budget, including expenses, subscriptions, income, gifts, spending cash, etc. There are many online budgeting services available which can help you compile this information at no cost. After you’ve charted your income and expenses, note the gap between them. Hopefully, it’s a positive number for most months, and hopefully at least three digits. If you’re barely scraping by or have a negative cash flow, look very carefully at your monthly expenses. Do you go out to eat often when you could eat at home or use microwaveable meals? Do you see movies or plays in theaters when you could watch their film versions online for much less? Are you paying for services or subscriptions you no longer use or need? Every little expense, whether it’s $5 per month or $5 per day, will help you get the capital together to finally afford your down payment.

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