How to Save for a Down Payment

Crystal 

Walker

Content Writer

Most buyers spend years saving toward a number they picked up somewhere and never questioned. That number is usually 20%, and for most first-time buyers, it is the wrong target.

How Much Do You Actually Need for a Down Payment?

The median down payment for first-time buyers in 2025 was 10%. On a $400,000 home, that is $40,000. Still a real goal, but a different one than $80,000. 

Minimum down payment requirements vary by loan type. VA and USDA loans require nothing down for eligible borrowers. FHA loans require 3.5% for borrowers with a credit score of 580 or higher. If your score falls between 500 and 579, FHA requires 10% down. Conventional loans allow as little as 3% for first-time buyers through programs like Fannie Mae HomeReady and Freddie Mac Home Possible, though the standard minimum for other borrowers is 5%. 

Putting down less than 20% on a conventional loan means paying private mortgage insurance. PMI typically costs between 0.46% and 1.50% of the loan amount per year, according to the Urban Institute's Housing Finance Policy Center. That is a real cost. So is spending extra years renting while you save past the point where it makes financial sense. 

Is waiting to hit 20% worth it?

It depends on the market and your situation, but the math often does not favor waiting. Every year spent renting is a year not building equity. If home prices in your area are rising, delaying can cost more than PMI would have. The question worth asking is not how to reach 20%, but what down payment leaves you financially stable after closing while still letting you buy in a reasonable timeframe. Our Financing & Affordability guide helps you work through that number based on your actual income and monthly budget.

How Do You Set a Realistic Savings Target?

Start with the price range of homes you are actually looking at, not a national average. Pick a down payment percentage based on the loan type you are likely to use. Add 2% to 5% on top for closing costs, which most first-time buyers underestimate or forget entirely. That total is your number.

Then divide it by how many months you have until you want to buy. If that monthly figure is not achievable on your current income, you have three levers: extend the timeline, lower the target price, or increase what you earn. Cutting small expenses rarely moves the number fast enough to matter much.

How do you close the gap faster?

The buyers who get to their target fastest are usually not the most disciplined budgeters. They are the ones who found one big lever and pulled it. Taking in a roommate, moving somewhere cheaper temporarily, picking up freelance work, or negotiating a raise will do more than any spending audit. Once you identify your actual gap, it becomes clearer which lever is realistic for your situation.

Where Should You Keep Your Down Payment Savings?

Keep it completely separate from your checking account and your emergency fund. Mixing the accounts is one of the most common ways people accidentally spend money they intended to save.

A high-yield savings account is the right place for most buyers. Top accounts are currently paying up to 5.00% APY as of late May 2026, more than 10 times the national average of 0.38%. The money stays FDIC insured and fully liquid. On a $30,000 balance, a top-rate high-yield account earning around 4.50% generates roughly $1,350 per year in interest, compared to about $114 at the national average rate. Set up an automatic transfer from your paycheck so the money moves before you have a chance to spend it. 

What Down Payment Assistance Programs Exist?

Most buyers never look into this, which is a mistake. As of Q3 2025, there are 2,624 down payment assistance programs across the country, with average benefits of $18,000. These come from state housing agencies, counties, cities, and nonprofits. Some are outright grants. Others are second mortgages that are deferred or forgiven if you stay in the home long enough. 

The HUD definition of a first-time buyer includes anyone who has not owned a primary residence in the last three years, so previous homeowners can qualify. Income limits tend to be higher than buyers assume. An $18,000 benefit against a $40,000 target is significant. Our  Top Programs for First-Time Homebuyers article covers the most common options. Check what is available in your state and county before assuming you are on your own. 

What Should You Do With Your Credit While You Save?

Your credit score affects your mortgage rate, which affects every payment for the life of the loan. A half-point difference in rate on a $350,000 mortgage is tens of thousands of dollars over 30 years. While you are saving, pay down revolving balances, keep utilization below 30%, and avoid opening new accounts in the six to twelve months before you plan to apply.

Also avoid taking on new installment debt. A car loan in the year before you apply can shift your debt-to-income ratio enough to change what you qualify for or what rate you get.

When should you talk to a lender?

Before you think you are ready. Getting prequalified early tells you which loan programs you qualify for, what your real savings target is, and whether anything in your credit profile needs attention with enough time to fix it. It also surfaces assistance programs you may not have known about. There is no cost and no commitment, and the information changes how you plan.

For a full breakdown of what buying actually costs beyond the down payment, the How Much Money Do You Need to Buy a House guide covers closing costs, reserves, and other upfront expenses first-time buyers regularly underestimate.

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_{Disclaimer: This article is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Always consult a licensed professional before making decisions based on this information.}