5 Ideas to Get You from 0 to Down Payment in Just 3 Years

Checking out real estate listings online can be a fun way to pass the time. When you come across your dream home, the wheels start turning as you imagine yourself waking up in your new house, pouring a cup of coffee, staring out the window… until you scroll down and see how much you’d need to save up to buy the place.

How in the world could you ever save up that much money? Your dreams are dashed — aren’t they? Well, not necessarily! Even if you have nothing saved up for a house today, you could be ready to put down a big down payment in three years. You could be a first-time homebuyer then, and all you need is a real-life plan that will get you there.

If you’ve ever saved up for a nice vacation or a car, you’ve got the general idea: Spend less than you earn, and set aside the extra for the future. But because the down payment on a house is a much bigger number, you’ll need to dial in your strategies a little in order to hit it.

We’ve run some scenarios using government data to see how you can save tens of thousands of dollars for a down payment without going insane. And as an added bonus, we’ll show you how to save for your house in under three years.

First, find out how much you need

Before you can start saving up for your new home, you need to have a specific, actionable goal in mind.

Let’s imagine you’re part of a couple, and together you bring home $75,500 per year. That’s about the median household income in the U.S., according to HUD (the U.S. Department of Housing and Urban Development). And let’s say the houses you’ve got your eyes on cost $300,000 (again, not too far off from the national median of $324,500 in 2019).

To account for the very real possibility that the market will have appreciated three years from now, we’ll set your target price at $330,000 — 10% higher than today to account for appreciation. If the market dips instead, you’ll be that much better off!

If you’re not sure how much you can afford based on your own financial situation, check out our Home Affordability Calculator.

Your down payment

The down payment on a new house will be your biggest expense, by far. To get the best rates on your home mortgage, aim to save enough to put 20% down. On a $330,000 house, that would be $66,000.

Not everyone can afford to save that much, and lenders know this. That’s why so many people choose mortgages that allow them to put much less down. In fact, a 2019 profile by the National Association of Realtors said first-time buyers brought an average of 6% for a down payment. On our example home, 6% would be a down payment of $19,800.

If even 6% down sounds impossible, it’s not. Top-selling Trussville, Alabama, agent Josh Vernon says many of his first-time homebuyer clients have buckled down and saved impressive amounts in order to be able to buy their first home.

In fact, one customer paid for his whole house in cash. “This guy was 28, 29 years old” — A young police officer. “He’d saved every penny he had and he paid cash for his first home, which just doesn’t happen very often. All because he was smart on the front end,” Vernon says.

Closing costs

On top of your down payment, you’ll need to have enough cash to cover your closing costs. These are the fees and charges associated with closing your loan. Count on 1% to 3% of the home price for these; Using our example, you’d need up to $6,600.

Total cash required

In our illustration, 6% down and 3% in closing costs equals $26,400. That’s 35% of what you and your partner will bring in annually over this time frame, and to reach it, you’ll need to save $8,800 each year for three years. The most effective way to reach this goal is to combine a focused savings plan with maximizing your income.

To get the most bang for your buck, take a look at your biggest expenditures. Here are some ideas.

Saving strategy No. 1: Cheaper digs

What if you could put your current rent payment toward your savings account instead of your landlord? To increase your savings rate, here’s a drastic option: Move home with your parents for a short while. You could save up to 100% of your rent costs.

Too much for you? Take on a roommate or two, instead.

If you don’t want to share your home with more people, explore some other options for cutting back on rent. Maybe move to a smaller apartment, or to a building with fewer amenities. Or consider a short-term move to a place that’s more inconvenient, but cheaper.

If you’re currently paying the U.S. median rent per month, which was $1,023 in 2018, and you move back in with your parents, you could save $12,276 per year. You’d have enough for your down payment in just over two years. If you took on a roommate and split bills instead, you could save $6,138 in a year.

Saving strategy No. 2: Take a good, hard look at your car

Your next task is to take a second look at your wheels.

Evaluate whether you could get rid of your car while you’re saving for your down payment. If you’re making monthly car payments, that could be several hundred dollars a month in savings.

Check out your public transportation options. Carpool with your partner or a friend from work. Ask your employer about telework options. Trade the car for a bike and helmet. Or combine this strategy with the first and see if you can move within walking distance of work or public transit stops.

Experian puts the average used car payment at $400 a month ($550 if you’re driving new wheels). Cutting $400 a month in car payments, $119 a month in insurance (the national average), and $90 per month in gas (also the national average) works out to $7,308 per year in savings — and if you’re walking or biking, you won’t have to spend anything on public transportation.

Saving strategy No. 3: Learn how to cook

Eating out eats right through your budget. But don’t give up dining out altogether; Just save your meals out together for special occasions. It’ll make the meal something to look forward to, and you’ll be more mindful of your restaurant spending if it’s an occasional habit, not a regular one.

“If buying a home is a real financial decision someone’s making, then making their own lunch and making coffee at home [are great ways to start],” says Vernon.

If it’s the siren call of the coffee shop that’s been draining your bank account, make coffee or tea at home.

If you’re worried about date night now that you’re cutting back on restaurants, challenge yourself and your date to find low-cost or even free activities: A walk in the park, a trip to the lake, a visit to a public museum. You’ll value the memories you create together.

Zagat, the restaurant guide, says the average American dines out about five times a week, and also puts the average cost of each restaurant visit at about $36 per person. In that case, cutting your restaurant spending to only special occasions could save you upwards of $700 a month. That means an extra $8,400 a year toward the down payment on your new home.

Saving strategy No. 4: Cut corners elsewhere

Now that you’ve examined your major expense categories, what else can you pause until you have your down payment saved? Perhaps your gym membership, or a few of your streaming services?

If you have a vice or two (such as smoking or drinking), cut back or quit.

Skip going to the movies or buying books and make a trip to your library instead. If you haven’t been there in a while, you might be surprised at the books, magazines, movies, and music you have free and instant access to. With an app like Overdrive, you don’t even have to leave your house to borrow something.

A smoker who goes to the movies twice a month and has an affinity for buying new novels when they come out could easily save $350 a month by changing habits. At that rate, you could see $4,200 a year added to your house fund.

Saving strategy No. 5: Hustle up a side gig

The last component to making big deposits to your savings account is increasing your income. Probably the simplest method is to add a side gig to your evenings or weekends; Even if it’s not a lot, the cash will still add up, especially if you’ve made other savings sacrifices.

If you decide to keep your car, make it profitable by driving for a ride-share service. Opted not to take on a roommate? What about offering your spare bedroom on Airbnb? If you cringe at moving in with your parents but wouldn’t mind the occasional weekend of family time, you could rent out your whole apartment then. Animal lovers can pick up dog-walking gigs or pet-sit for people heading out of town.

Consider what other skills you could offer: Tutoring neighborhood students; Hemming pants or doing alterations if you like to sew; Running errands if you’re a more active type.

At $30 or $50 or $100 bucks a pop, even just a few gigs a month means you could put away between $1,200 and $3,600 a year.

Get those savings up

While saving nearly $30,000 cash to buy a house may sound overwhelming at first, it’s not impossible. In fact, using the strategies we’ve outlined above, you could save up enough each year using just one or two tactics at a time. Just one of the following combos would get you to your goal in three years:

• Giving up your second car and frequent restaurant trips
• Getting a roommate and doing odd jobs on the weekend
• Quitting smoking and living with your parents for a while

Vernon’s business partner, Jamey Reynolds, agrees. “It’s pretty amazing how quickly a decent sum of money, like a 5% or 10% or 20% down payment, can be accumulated by somebody that has a real desire to make that happen,” he says.

And while going full frugal for three years might not sound like a good time, you’ll know that it won’t be forever, and that the end goal — your new home — is going to be worth the effort.

Header Image Source: (Michael Longmire / Unsplash)