How to Save for a Down Payment: The Complete Guide

Picture someone like Jasmine, a 32-year-old dental hygienist who rents a two-bedroom apartment. (She’s a made-up example, but her story is a common one.) Every year her rent goes up a little. Every year she tells herself that next year is the year she’ll buy a home.

Then she looks at a listing for a modest house near her job. The price is around $300,000. She does some quick math, assumes she needs 20% down, and lands on $60,000. Her savings account holds $4,200. She closes the app and doesn’t look again for months.

If that sounds familiar, here’s the good news. Jasmine’s math was off in two ways. She probably doesn’t need 20% down. But she also forgot about closing costs, moving costs and a cash cushion. Once you know the real number, saving for it stops feeling like a fantasy and starts looking like a plan with a date on it.

This guide walks you through that plan, one step at a time. You’ll learn how much you actually need, where to keep the money while it grows, and how to save it faster without wrecking the rest of your finances.

What you’ll learn

• The real minimum down payment for each major type of home loan
• How to figure out your full “cash to close” number, not just the down payment
• The honest trade-offs between putting down 3%, 10% and 20%
• Where to keep your savings so it’s safe and still earns something
• Practical ways to find an extra few hundred dollars a month
• When down payment help, family gifts or retirement money make sense, and when they don’t
• A step-by-step plan you can start this week

Table of contents

1. What a down payment is and why it matters
2. How much do you really need to put down?
3. The real trade-off: mortgage insurance and your monthly payment
4. Your full number is bigger than the down payment
5. Set your savings goal and timeline
6. Where to keep your down payment savings
7. Ways to find more money to save
8. Down payment help, gifts and family money
9. Should you use retirement money?
10. Your step-by-step action plan
11. Common mistakes to avoid
12. Myths vs. facts
13. Key takeaways
14. Frequently asked questions

What a down payment is and why it matters

A down payment is the part of the home’s price you pay in cash up front. The lender covers the rest with a mortgage, which is a loan secured by the house itself. If a home costs $300,000 and you put down $15,000, you borrow the other $285,000.

Lenders care about your down payment because it’s your “skin in the game.” The more of your own money you put in, the less they have to lend. That lowers their risk, and lower risk usually means better terms for you.

Your down payment affects four big things:

• Your loan size. A bigger down payment means you borrow less, so you pay less interest over time.
• Your monthly payment. Borrowing less shrinks the payment you’ll make every month for years.
• Mortgage insurance. On most loans, putting down less than 20% means paying extra for insurance that protects the lender. More on that soon.
• Your equity. Equity is the share of the home you truly own: its value minus what you still owe. A bigger down payment gives you a head start.

Saving for a down payment is often the hardest part of buying a first home. In a 2025 Bankrate survey, 52% of aspiring homeowners called the down payment and closing costs a “very significant” obstacle. You’re not alone if this feels like a big hill to climb.

And the climb is taking longer than it used to. The National Association of Realtors (NAR) found that the typical first-time buyer was 40 years old in its 2025 report, an all-time high. First-time buyers made up just 21% of all buyers, a record low.

None of that means you can’t do it. It means a clear plan matters more than ever. The rest of this guide is that plan.

How much do you really need to put down?

Here’s the short answer: probably less than you think. The idea that everyone needs 20% down is one of the most stubborn myths in personal finance. As Bankrate puts it, “You likely don’t have to save 20% for a down payment on a home.”

The minimum depends on the type of loan you get. Here are the main options.

Conventional loans: as little as 3%

A conventional loan is a regular mortgage that isn’t backed by a government agency. Most follow rules set by Fannie Mae and Freddie Mac, two companies that buy mortgages from lenders. The Consumer Financial Protection Bureau (CFPB) says these loans can require as little as 3% down.

Fannie Mae offers 3% down options such as its HomeReady loan for income-limited buyers and a 97% loan-to-value option for first-time buyers. Bankrate notes that conventional loans generally need a credit score of at least 620.

FHA loans: as little as 3.5%

FHA loans are insured by the Federal Housing Administration, part of the U.S. Department of Housing and Urban Development (HUD). HUD says your down payment can be as low as 3.5% of the purchase price. According to Bankrate, that 3.5% usually applies with a credit score of 580 or higher. With a score from 500 to 579, the minimum rises to 10%.

FHA loans are popular with first-time buyers because the credit rules are more flexible. The catch is mortgage insurance, which we’ll cover in the next section.

VA loans: often 0% down

If you’re a veteran or service member, a VA loan may be the best deal around. The U.S. Department of Veterans Affairs says VA-backed purchase loans often need no down payment, as long as the price isn’t higher than the home’s appraised value. There’s also no monthly mortgage insurance. You may pay a one-time funding fee instead, which is 2.15% of the loan for first-time VA loan users who put down less than 5%.

USDA loans: often 0% down

The U.S. Department of Agriculture backs loans for homes in eligible rural and some suburban areas. Bankrate notes they generally require no down payment, with a credit score of about 640 or higher. Income limits apply. The CFPB says USDA mortgage insurance works much like FHA’s but is typically cheaper.

Jumbo loans: 10% to 20%

A jumbo loan is a mortgage bigger than the limits Fannie Mae and Freddie Mac will buy. These usually require 10% to 20% down and strong credit. Most first-time buyers won’t need one, but it’s worth knowing if you live in a high-cost area.

Loan type	Typical minimum down	Mortgage insurance?	Good fit for
Conventional	3%	Yes, under 20% down (can be removed later)	Buyers with fair-to-good credit
FHA	3.5% (580+ score)	Yes, upfront and monthly	Buyers rebuilding credit
VA	Often 0%	No monthly insurance; funding fee may apply	Veterans and service members
USDA	Often 0%	Yes, upfront and monthly	Rural and some suburban buyers
Jumbo	10% to 20%	Varies by lender	Pricier homes in high-cost areas

Sources: CFPB, HUD, VA, Fannie Mae and Bankrate. Rules can vary by lender, so check with a few.

What do real buyers put down?

Most first-time buyers don’t put down 20%. In NAR’s 2025 report, the median down payment was 10% for first-time buyers and 23% for repeat buyers. Repeat buyers usually have an advantage: they can roll profit from selling their last home into the next one.

Here’s what different down payments look like on a home priced at $410,700. That’s the median price of a newly built home sold in the second quarter of 2026, according to Census Bureau and HUD data.

So what should you aim for?

This is where experts don’t fully agree, and it’s worth hearing both sides.

Ramsey Solutions, the company behind radio host Dave Ramsey, recommends putting down 20% or more so you can skip private mortgage insurance. For first-time buyers, Ramsey says at least 5% is okay if you’re ready to pay that insurance. Ramsey also pushes a 15-year fixed-rate loan and a payment no higher than 25% of your take-home pay. That’s a conservative approach. It keeps your monthly costs low and your debt short.

Other experts focus on time. NerdWallet, Bankrate and the CFPB all point out that 20% isn’t required. Waiting years to reach 20% can mean paying more rent while prices keep moving. On the other hand, the CFPB warns that “Low-down payment options can mean higher costs over the life of the loan.”

So the honest answer is that it depends. How fast are prices rising where you live? How long would it take you to reach 20%? How stable is your income, and how much would a higher payment squeeze you? A smaller down payment can make sense. Just make sure the monthly payment it creates still fits your budget comfortably.

The real trade-off: mortgage insurance and your monthly payment

If you put down less than 20% on a conventional loan, you’ll almost always pay private mortgage insurance, or PMI. PMI protects the lender, not you, if you stop making payments. You pay for it, usually as part of your monthly mortgage bill.

How much does it cost? Freddie Mac says to expect roughly $30 to $70 a month for every $100,000 you borrow. The CFPB notes that PMI rates vary by your down payment and credit score.

FHA loans have their own version called a mortgage insurance premium. The CFPB explains that it’s required on all FHA loans, with one part paid at closing and another part paid monthly. VA loans skip monthly mortgage insurance but may charge the funding fee mentioned earlier.

Example: 3% vs. 10% vs. 20% down

Let’s run the numbers on that $410,700 home. We’ll use a 30-year fixed rate of 7.40%, which was the national average in Freddie Mac’s weekly survey for the week of October 15, 2026. The figures below cover principal and interest only. Property taxes and homeowners insurance would come on top.

Down payment	Cash down	Loan amount	Monthly principal and interest	Estimated PMI per month
3%	$12,321	$398,379	$2,758	$120 to $279
10%	$41,070	$369,630	$2,559	$111 to $259
20%	$82,140	$328,560	$2,275	$0

Here’s what jumps out. Going from 3% down to 20% down takes almost $70,000 more in cash. In return, your monthly payment drops by about $483 in principal and interest, plus you skip PMI. That’s real money every month. But saving that extra $70,000 could take years.

The middle path is often the sweet spot. At 10% down, PMI is cheaper than at 3%, and your loan is smaller. You can also get rid of PMI later.

PMI doesn’t last forever on a conventional loan

This part surprises a lot of people. Federal law gives you at least two ways out of PMI on most conventional loans. According to the CFPB:

• You can ask your loan servicer in writing to cancel PMI once your balance is scheduled to reach 80% of the home’s original value. You can also ask sooner if extra payments get you there early. You’ll need a good payment history and may need to show the home hasn’t lost value.
• Your servicer generally must drop PMI automatically when your balance is scheduled to hit 78% of the original value, as long as you’re current on payments.

FHA and VA loans follow different rules, so ask your lender how long their insurance lasts before you choose.

Pro tip: If you put down less than 20% on a conventional loan, set a calendar reminder for when your balance should reach 80% of the original value. Asking to cancel PMI on time can save you thousands of dollars over the life of the loan.

Your full number is bigger than the down payment

This is the mistake Jasmine made in our opening example, and it trips up a lot of first-time buyers. The down payment is the biggest check you’ll write, but it isn’t the only one. Think in terms of cash to close: all the money you need on hand to finish the purchase and move in without draining your safety net.

Closing costs

Closing costs are the fees to finalize your loan and the sale. They include things like the appraisal, title insurance, lender fees and prepaid taxes. The CFPB says they typically run 2% to 5% of the purchase price, on top of your down payment. On a $300,000 home, that’s $6,000 to $15,000.

You’ll see an estimate early. Your lender sends a Loan Estimate within three days of your application, and you get a Closing Disclosure at least three business days before closing, as Bank of America’s Better Money Habits explains.

Earnest money

Earnest money is a good-faith deposit you pay when a seller accepts your offer. It shows you’re serious. Better Money Habits says it typically runs 1% to 3% of the sale price. The good news is that in a typical purchase it’s applied toward your down payment or closing costs at the end. The catch is timing: you need that cash ready weeks before closing, not on the day.

Moving and move-in costs

Movers aren’t free. Bankrate cites HomeAdvisor data putting the average cost of movers at $1,705. Then come the little things: a new lock, curtains, a lawn mower, a few repairs the inspection turned up. Fannie Mae suggests saving for closing costs, repairs and moving on top of your down payment.

Your emergency fund stays separate

Your emergency fund is not part of your down payment. The CFPB suggests keeping a cushion of three to six months of expenses after you buy. Homes come with surprise bills, like a dead water heater in month two. If you’ve emptied every account to get the keys, one surprise can land on a credit card. Our emergency fund guide walks through how much to keep.

Example: Jasmine’s real number

Let’s go back to Jasmine and her $300,000 house. Say she plans on a conventional loan with 5% down. Here’s her full cash-to-close goal:

Item	How it’s figured	Amount
Down payment	5% of $300,000	$15,000
Closing costs	3% of $300,000 (middle of the 2% to 5% range)	$9,000
Movers	National average	$1,705
Move-in and small repairs	Her own estimate	$2,000
Total cash to close		$27,705

That’s a lot less scary than the $60,000 she first imagined. It’s also more honest than “just the down payment,” because it includes the costs that catch people off guard. Her emergency fund sits on top of this, in its own account.

Set your savings goal and timeline

A goal without a date is just a wish. So before you save a dollar, you want two numbers: how much, and by when.

What comes first: debt, emergency fund or house?

Here’s another spot where respected voices disagree, so it helps to see the options side by side.

Ramsey Solutions takes a strict, step-by-step view. Its house-saving guide says to pay off debt first and build a full emergency fund of three to six months of expenses before you start saving for a home. Ramsey also says it’s okay to pause retirement investing for a short time, about two years at most, to speed up a down payment.

Fidelity’s approach is lighter. It suggests first making progress on other goals, such as at least $1,000 in emergency savings, any 401(k) employer match and paying down debt, then sending at least some of what’s left toward a down payment. Bankrate also stresses keeping enough in your workplace retirement plan to get any employer match.

Which is right for you? It depends on your debts and your job. If you’re carrying high-interest credit card debt, paying it down first usually wins, since card interest costs more than savings accounts earn. If your income is steady and your debts are small, saving for a house alongside a growing emergency fund can work. Most planners would agree on one thing: don’t buy a home with zero cushion left.

Step 1: Pick a realistic price range

Your down payment goal comes from your target price, so start there. A few rules of thumb can help, though none is perfect:

• Fidelity suggests a home price of roughly three to five times your yearly household income, adjusted for your debts and mortgage rates.
• Better Money Habits suggests keeping your total monthly debt payments under 43% of your gross monthly income. That includes the new mortgage, car loans, student loans and card minimums.
• Ramsey Solutions is stricter. It says your full housing payment should be no more than 25% of your take-home pay.

These give very different answers, and that’s okay. The 43% figure is closer to the most a lender may approve. The 25% rule is a comfort-first target. Most people land somewhere in between. Try the CFPB’s suggestion of working backward from a monthly payment you’d feel good about, not the biggest loan a bank will offer.

Prices also matter. The chart below shows the median price of newly built homes sold in the U.S. Prices jumped in 2021 and 2022, then leveled off around $410,000 to $420,000.

Step 2: Add up your full cash-to-close goal

Use the method from Jasmine’s example. Take your down payment percentage, add 2% to 5% for closing costs, then add moving and move-in money. Round up a bit. It’s better to have $1,000 extra at closing than $1,000 short.

Step 3: Divide by your timeline

Now subtract what you already have and divide by the number of months until you want to buy. That’s your monthly savings target.

Example: Jasmine’s monthly target

Jasmine needs $27,705 and already has $4,200 saved. Her gap is $23,505.

• To buy in 2 years (24 months): $23,505 ÷ 24 = about $979 a month.
• To buy in 3 years (36 months): $23,505 ÷ 36 = about $653 a month.

Interest on her savings would trim those numbers a little, but it’s smart to plan without counting on it. If $979 a month isn’t doable, she can stretch the timeline, aim for a cheaper home or look for down payment help. All three are fair choices.

For a bigger example, Fidelity runs the math on a $410,000 home with 20% down. That’s $82,000, or about $1,367 a month for five years, starting from zero and earning nothing. Seeing it laid out like that makes it clear why so many first-time buyers choose a smaller down payment.

Watch out: Lenders look at your debts, not just your savings. Paying down a credit card while you save can help you qualify for a better loan. Our guide to how credit scores work explains why.

Where to keep your down payment savings

Down payment money has one job: be there, in full, on the day you need it. That changes where it should live. You want it safe, easy to reach and earning a fair rate. Chasing big returns isn’t the goal.

High-yield savings accounts

A high-yield savings account is a savings account, often at an online bank, that pays much more interest than a typical one. As of early October 2026, Bankrate reported that the best ones were paying around 4% APY. (APY, or annual percentage yield, is the yearly return including compound interest.) Compare that with the FDIC’s national average savings rate of 0.38% in October 2026.

At a bank insured by the FDIC, your deposits are protected up to $250,000 per depositor, per bank, for each account ownership category. Credit union deposits get similar coverage through the NCUA. For most savers, that covers everything.

Money market accounts

A money market account is a bank or credit union account that mixes features of savings and checking. Some let you write checks. Rates are often similar to high-yield savings. They’re insured the same way as other bank deposits.

Certificates of deposit (CDs)

A CD locks in a rate for a set time, such as 6, 12 or 18 months. In exchange, you usually pay a penalty if you pull the money out early. CDs work well if you know your buying date. NerdWallet suggests timing each CD to mature before you expect to need the money.

Build a simple CD ladder

A CD ladder spreads your money across several CDs that come due at different times. It lets you lock in rates without tying up all your cash at once.

Here’s how it might look. Say you have $12,000 saved and plan to buy in about 18 months. You could put $4,000 in a 6-month CD, $4,000 in a 12-month CD and $4,000 in an 18-month CD. Every six months, one CD comes due. If your plans speed up, you’ll have cash coming free soon. If they slow down, you can roll it into a new CD. Keep new monthly savings in your high-yield account so you always have some money you can reach right away.

Money market funds and other cash-like options

Fidelity lists money market funds among the conservative choices for goals within about three years. These are investment funds, not bank deposits. The FDIC notes that non-deposit investment products aren’t covered by deposit insurance, even when a bank sells them. They tend to be low-risk, but they’re a little different from a savings account.

Why not the stock market?

Stocks tend to grow more over long stretches. But over two or three years, they can drop hard and stay down. Imagine saving $30,000, then watching it fall to $22,000 the month you find the right house. NerdWallet says stocks are generally too risky for a short-term goal unless you have 10 or more years. Fidelity takes a similar view: for money needed within about three years, stick with conservative options. If your timeline is longer, Fidelity says some of the money could be invested, depending on how much risk you can stomach.

Option	Safety	Access	Best for
High-yield savings	FDIC or NCUA insured	Anytime	Most down payment savers
Money market account	FDIC or NCUA insured	Anytime, sometimes by check	People who want check access
CD	FDIC or NCUA insured	Locked until maturity	A known buying date
Money market fund	Not FDIC insured, but low-risk	Usually within a day or two	Brokerage customers
Stocks and stock funds	Can lose value	Anytime, but price varies	Timelines of many years

Example: does the interest rate really matter?

Let’s say you save $1,000 a month for four years. Here’s what you’d have, assuming the rate stays the same the whole time (it won’t, but this shows the gap):

• At 0.38% APY, the national average: about $48,358.
• At 4.00% APY, a top high-yield account: about $51,885.

That’s roughly $3,500 more for the same effort, just from choosing a better account. It’s helpful, but notice what does most of the work: the $48,000 you put in yourself. A good rate is a nice tailwind. Your monthly habit is the engine.

Pro tip: Open a separate account just for your house fund and give it a nickname like “Front Door.” Money you can’t see in your checking account is much easier to leave alone.

Ways to find more money to save

Knowing your number is half the battle. The other half is finding the money each month. Here are the methods that tend to work best, starting with the easiest.

Automate it first

Set up an automatic transfer to your house fund for the day after payday. If your employer allows it, Bankrate suggests splitting your direct deposit so part of each paycheck goes straight into savings. You can’t spend what never lands in checking.

Start with an amount you won’t miss, even $100. Then raise it by $25 or $50 every couple of months. Small, steady bumps feel much easier than one big cut.

Trim your biggest bills

Small cuts add up, but big bills move the needle faster. NerdWallet suggests shopping your car insurance, bundling services, canceling subscriptions you don’t use and tracking every dollar for a month. If you don’t have a spending plan yet, our guide on how to make a budget that actually works is a good place to start.

Here’s a quick example. Say you shave $60 a month off car insurance, $45 off your phone plan and $40 in unused subscriptions. That’s $145 a month, or $3,480 over two years. Nobody would call that a sacrifice, yet it covers nearly 40% of the closing costs on a $300,000 home at 3%.

Send windfalls straight to the fund

A tax refund, a raise, a bonus or a birthday check can jump-start your savings. NerdWallet recommends directing these straight to your house fund. One rule of thumb we like: when you get a raise, send at least half of the increase to savings before you get used to it.

Saving as a couple

If you’re buying with a partner, sit down together and agree on three things: the price range, the date and how much each of you puts in each month. Some couples split it 50/50. Others split it by income, so a partner who earns 60% of the household pay puts in 60% of the savings. Either can work. What matters is that you both agree and can see the progress. A shared savings account with a clear name helps keep you on the same page.

Make your renting years count

Rent isn’t “wasted” money. It buys you a place to live and flexibility while you save. But you can make those years work harder. When your lease comes up, ask whether a cheaper unit, a roommate or a shorter commute could free up cash. Moving to a place that’s $200 a month cheaper adds $4,800 to your house fund over two years. Also, practice your future budget now. If your expected mortgage payment, taxes and insurance would be $500 more than your rent, save that $500 every month. You’ll grow your fund and prove to yourself that the new payment fits.

Earn a little extra

Extra income has no ceiling, while cutting costs eventually does. Freelance work, weekend shifts, delivery gigs or selling things you no longer use can all add up. Be careful with any “opportunity” that asks you to pay money up front. That’s a classic sign of a scam.

Pay down high-interest debt

This one sounds backward, but it often helps. Bankrate notes that “A lower debt load will make you a better candidate for a mortgage.” Lower debt payments can help you qualify for a bigger loan or a better rate. If credit cards are part of your picture, our guide on how to pay off credit card debt can help you plan both goals at once.

Pause other goals, but keep the match

Some people temporarily send less to extra savings goals while they build a house fund. That can make sense. But Bankrate’s advice is to keep contributing enough to get any employer retirement match. A match is free money, and skipping it is a costly way to save.

For more ideas on building a down payment when prices and rates are high, this Yahoo Finance segment is a helpful watch:

Down payment help, gifts and family money

Most first-time buyers don’t do it on savings alone. NAR’s 2025 report found that 59% of first-time buyers used savings for their down payment. But 26% also tapped financial assets like a 401(k), stocks or crypto, and 22% got a gift or loan from family or friends. Buyers could pick more than one source, so the numbers add up to more than 100%.

Down payment assistance programs

Down payment assistance is money from a state, city, county or nonprofit program to help buyers with a down payment or closing costs. It may come as a grant you never repay, a low-interest loan or a “forgivable” loan that disappears if you stay in the home for a set number of years.

Many people never check whether they qualify. Don’t skip this step. The CFPB suggests looking at state and local government programs, plus nonprofits. HUD says you can talk with a HUD-approved housing counselor by calling (800) 569-4287. Counselors can explain local programs, often for free or at low cost.

Programs differ a lot. Some have income or price limits. Some require a homebuyer education class. Some only work with certain lenders. Ask each program what you’d owe if you sell or refinance early.

Gifts from family

If a parent or relative wants to help, that’s a real gift, and many loan programs allow it. There are rules, though. Fannie Mae notes that gifts may need paperwork, and the share of gifted money allowed varies by loan. Bankrate suggests a gift letter, which is a signed note saying the money is a gift and not a loan you’ll have to repay.

Two practical tips. First, tell your lender about any gift early. Second, keep a paper trail. A large, unexplained deposit in your account can slow down your loan approval while the lender asks where it came from.

Loans from family

A loan from family is different from a gift. Lenders usually count it as debt, which can affect how much you qualify for. It can also strain relationships if life gets in the way of repaying. If you go this route, put the terms in writing and be honest with your lender about it.

Should you use retirement money?

It’s tempting. A retirement account might hold more money than anything else you own. And in some cases, the rules allow it. But it usually costs more than people expect, so go in with clear eyes.

IRAs: the $10,000 first-time buyer exception

Normally, taking money out of an IRA before age 59½ triggers a 10% additional tax on top of regular income tax. The IRS lists an exception for qualified first-time homebuyers, up to $10,000. That exception applies to IRAs. It does not apply to 401(k) plans.

Even with the exception, money you pull from a traditional IRA is generally still taxed as income, as NerdWallet points out. Roth IRAs have their own rules. If you’re weighing the two account types, our Roth vs. traditional IRA guide explains the differences.

401(k) loans

Many 401(k) plans let you borrow from yourself. The IRS says you can generally borrow the lesser of half your vested balance or $50,000. Loans usually must be repaid within five years, but the law allows a longer term when you use the loan to buy your main home.

The risk is your job. NerdWallet notes that if you leave your job, the balance generally comes due by your next tax-filing deadline. If you can’t repay it, it’s treated as a withdrawal, with income tax and possibly a 10% penalty if you’re under 59½. You also miss out on market growth on the money while it’s out of your account.

Example: the true cost of a 401(k) withdrawal

Say you’re 35 and pull $10,000 straight out of your 401(k), not as a loan. You’re in the 22% federal tax bracket.

• Federal income tax: 22% of $10,000 = $2,200
• 10% additional tax for early withdrawal: $1,000
• What you keep: $10,000 − $2,200 − $1,000 = $6,800

That’s before any state income tax. You’d give up about a third of the money just to use it today, plus all the growth it could have had by retirement. In most cases, that’s an expensive way to buy a house.

Some experts are fine with a 401(k) loan as a last step for a buyer with a stable job. Others disagree. Ramsey Solutions tells readers not to borrow from or cash out retirement accounts to speed up a down payment. Your safest move is to treat retirement money as off-limits unless you’ve run the numbers with a professional.

Your step-by-step action plan

Here’s everything above boiled down into steps you can follow. You don’t need to do them all this week. Just start with the first two.

1. Check your starting point. Write down your current savings, monthly take-home pay and debt payments. Pull your free credit reports so you know where you stand.
2. Pick a price range. Use a monthly payment you’d feel good about, then work backward. The CFPB’s homebuying tools can help.
3. Choose your likely loan type. Conventional, FHA, VA or USDA. This sets your minimum down payment.
4. Figure your full cash-to-close number. Down payment plus 2% to 5% for closing costs, plus moving and move-in money.
5. Set your date and monthly target. Subtract what you have, then divide by the months until you want to buy.
6. Open a separate high-yield savings account. Name it after your goal and set up an automatic transfer for payday.
7. Find the money. Trim your biggest bills, send windfalls to the fund and pay down high-interest debt.
8. Check for down payment help. Call a HUD-approved housing counselor and look up programs in your state and city.
9. Keep your emergency fund whole. Your house fund and your safety net are two different accounts.
10. Review every three months. Adjust your target if prices, rates or your income change.

When you reach your goal, the work isn’t over, but it gets more exciting. You’ll get preapproved, start touring homes and, before long, start packing.

Common mistakes to avoid

Even careful savers slip up. These are the mistakes that show up again and again.

• Saving only for the down payment. Closing costs alone can add 2% to 5% of the price. Plan for your full cash-to-close number.
• Emptying the emergency fund to buy. A new home will find ways to cost you money. Keep three to six months of expenses set aside.
• Putting short-term savings in stocks. A market drop right before closing can push your purchase back by a year or more.
• Leaving the money in a 0.01% account. NerdWallet and Bankrate both note that some traditional savings accounts pay about 0.01%. Moving to a high-yield account usually takes less than an hour.
• Making big credit moves before closing. A new car loan or a new credit card can change the numbers your lender approved. Wait until after you have the keys.
• Skipping assistance programs. Many buyers assume they won’t qualify and never check. A phone call to a housing counselor costs nothing.
• Not documenting gifts. Undocumented cash deposits can slow or stall your loan. Get a gift letter and keep records.
• Buying at the top of your approval. A lender’s maximum isn’t the same as a comfortable payment. Leave room for life.

Myths vs. facts

Myth: You need 20% down to buy a home.
Fact: Conventional loans can require as little as 3%, FHA loans 3.5% and VA and USDA loans often 0%. Twenty percent mainly helps you avoid PMI.

Myth: The down payment is the only cash you need.
Fact: Closing costs typically add 2% to 5% of the price, plus earnest money timing, moving costs and repairs.

Myth: PMI lasts for the life of the loan.
Fact: On most conventional loans, you can ask to cancel it at 80% of the original value, and it generally ends automatically at 78%. FHA rules are different.

Myth: You need perfect credit.
Fact: FHA loans can work with credit scores as low as 580 at 3.5% down, or 500 to 579 with 10% down, according to Bankrate.

Myth: Your house fund should be invested to grow faster.
Fact: For a goal a few years away, safety beats growth. Fidelity and NerdWallet both point to savings accounts, CDs and other conservative options.

Myth: Using family money is cheating.
Fact: About 22% of first-time buyers got help from family or friends, per NAR. It’s common and allowed, as long as it’s properly documented.

Key takeaways

• You likely don’t need 20% down. The typical first-time buyer put down 10% in NAR’s 2025 report.
• Minimums range from 0% (VA and USDA) to 3% (conventional) and 3.5% (FHA).
• Putting down less than 20% usually means mortgage insurance, but on conventional loans it can be removed later.
• Plan for your full cash-to-close number: down payment, 2% to 5% closing costs, moving and repairs.
• Keep your emergency fund separate. Don’t empty it to buy a house.
• Keep down payment savings in a high-yield savings account, money market account or CDs, not stocks.
• Your monthly savings habit matters more than your interest rate, but a good rate still helps.
• Check down payment assistance before you decide you can’t afford to buy.

Frequently asked questions

How much should I save for a house?

Start with your loan’s minimum down payment, then add 2% to 5% of the price for closing costs, plus moving and move-in money. On a $300,000 home with 5% down, that’s roughly $27,700. Keep your emergency fund on top of that.

How long does it take to save for a down payment?

It depends on your goal and how much you can save each month. Saving $1,000 a month gets you about $24,000 in two years, before interest. Divide your total goal by your monthly savings to find your own timeline.

Can I buy a house with no money down?

Possibly. VA loans for eligible veterans and service members and USDA loans in eligible areas often need no down payment. You’ll still usually need cash for closing costs, though some programs and sellers can help cover them.

Is 10% down enough?

For many buyers, yes. It’s the median for first-time buyers in NAR’s 2025 report. You’ll likely pay PMI on a conventional loan, but you can usually cancel it once you reach enough equity.

Can I use my 401(k) for a down payment?

You can sometimes borrow from it or withdraw from it, but both have costs. Withdrawals before 59½ usually face income tax and a 10% additional tax. A loan can come due quickly if you leave your job. The $10,000 first-time buyer exception applies to IRAs, not 401(k)s.

Where should I keep my down payment money?

Most people do best with a high-yield savings account at an insured bank or credit union. CDs can work if you know when you’ll buy. Avoid stocks for money you’ll need in the next few years.

Can family give me money for a down payment?

Yes, many loans allow gifts. Your lender will likely want a gift letter stating the money doesn’t need to be repaid. Tell your lender early and keep records of the transfer.

Does earnest money count toward my down payment?

Usually, yes. Earnest money is typically credited toward your down payment or closing costs at closing. You just need the cash available when your offer is accepted, which is weeks before closing day.

Your next step this week

Open a separate high-yield savings account for your house fund, name it after your goal and set up an automatic transfer for the day after your next payday. Pick an amount you won’t miss, even $100. You can raise it later. What matters is that your house fund starts growing this week, not “someday.”

Sources

1. Consumer Financial Protection Bureau, Determine your down payment, accessed October 2026.
2. Consumer Financial Protection Bureau, What is mortgage insurance and how does it work?, accessed October 2026.
3. Consumer Financial Protection Bureau, When can I remove private mortgage insurance (PMI) from my loan?, accessed October 2026.
4. U.S. Department of Housing and Urban Development, Loans, accessed October 2026.
5. U.S. Department of Veterans Affairs, Purchase loan, accessed October 2026.
6. U.S. Department of Veterans Affairs, VA funding fee and loan closing costs, accessed October 2026.
7. Internal Revenue Service, Retirement topics: Exceptions to tax on early distributions, updated December 11, 2025.
8. Internal Revenue Service, Retirement topics: Loans, accessed October 2026.
9. Federal Deposit Insurance Corporation, Understanding deposit insurance, accessed October 2026.
10. Federal Reserve Bank of St. Louis (FRED), data from the U.S. Census Bureau and HUD, Median Sales Price of Houses Sold for the United States (MSPUS), accessed October 2026.
11. Federal Reserve Bank of St. Louis (FRED), data from the FDIC, National Rate: Savings (SNDR), October 2026 data.
12. Federal Reserve Bank of St. Louis (FRED), data from Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States (MORTGAGE30US), week of October 15, 2026.
13. National Association of Realtors, First-time home buyer share falls to historic low of 21%, median age rises to 40, November 4, 2025.
14. Fannie Mae, What you need to know about down payments, accessed October 2026.
15. Freddie Mac, Breaking down PMI, accessed October 2026.
16. Fidelity Investments, How to save for a house or down payment, January 13, 2026.
17. Bank of America Better Money Habits, The home buying process: What to expect when buying a home, accessed October 2026.
18. Bankrate, How to save for a down payment (Allison Martin), February 9, 2026.
19. Bankrate, What is the average interest rate for savings accounts?, October 2026.
20. NerdWallet, How to save for a house: A step-by-step guide (Kate Wood), updated March 9, 2026.
21. Ramsey Solutions, How much down payment do you need on a house?, updated September 16, 2026.
22. Ramsey Solutions, How to save for a house, updated September 17, 2026.

This article is for educational purposes only and isn’t financial advice. Consider talking with a qualified professional about your situation.