The Dime Daily

How to Save Money for a House Down Payment

Updated June 2025 · You don't need 20% down. But you do need a plan — and the right account while you wait.

Skip the fluff — TL;DR

Three actions to start today: (1) Use our savings goal calculator to find your monthly savings target and exact timeline. (2) Open a dedicated high-yield savings account earning 4–5% APY — never keep a down payment in a regular savings account. (3) Automate a monthly transfer on payday. Don't wait to "see what's left" — it won't be there.

Step 1 — Set your down payment number

The first decision: how much are you putting down? The traditional 20% eliminates PMI (private mortgage insurance) — an additional monthly cost of 0.5–1.5% of your loan value annually. On a $350,000 mortgage, that's $1,750–$5,250/year in PMI until you reach 20% equity.

However, 20% isn't required. FHA loans allow 3.5% down. Conventional loans allow 3–5%. VA loans for eligible veterans: 0% down with no PMI. The math question: does waiting to save 20% (and paying rent the whole time) cost more than starting with 5% down and paying PMI for a few years? In high-appreciation markets, often: buy sooner with less down.

Also budget for closing costs (often forgotten):

Closing costs = 2–5% of the loan amount. On a $350,000 home with 10% down: closing costs on a $315,000 loan = $6,300–$15,750. Save for both the down payment AND closing costs as separate line items.

Step 2 — Where to keep the money (HYSA, not stocks)

Your down payment savings should live in a high-yield savings account (HYSA). Current top HYSAs earn 4–5% APY on FDIC-insured deposits. This is safe money — no risk of principal loss, available when you need it, earning meaningfully more than a regular savings account (typically 0.01–0.5% APY).

Do not invest a down payment fund in stocks, mutual funds, or ETFs. The stock market can drop 20–40% at any time — if your home purchase timeline overlaps with a downturn, you either lose your savings or have to delay buying. The correct risk level for money you need in 1–5 years: FDIC-insured savings or CDs, not equities.

Open a separate, labeled HYSA for the down payment — distinct from your emergency fund. "House Fund" in SoFi, Ally, or Marcus takes 5 minutes to create. The separation prevents you from dipping into it and makes the growing balance motivating.

Step 3 — Automate your savings

Set up an automatic transfer from your checking account to your House Fund HYSA on payday — not at the end of the month, on payday. The psychology matters: money that arrives in a savings account on the day you get paid doesn't feel available for spending. Money sitting in checking for 3 weeks before a transfer does.

Use the savings goal calculator to find the exact monthly amount you need to hit your target by your goal date. Enter the target amount, current savings, monthly contribution, and interest rate — it tells you your date or what you need to hit a date you pick.

Step 4 — Cut big expenses to accelerate

Cutting small expenses (coffee, subscriptions) feels good and does almost nothing. The real acceleration comes from big categories. The biggest levers in order of impact:

  • Housing: Get a roommate temporarily ($500–$1,000/month savings). Consider house-hacking — rent a room or ADU while you save.
  • Transportation: Downgrade your car if you're carrying a high payment. Sell and buy used outright if you can.
  • Dining and discretionary: $200–$400/month in genuine savings if you cook most meals — see our grocery guide.
  • Income: A side income of $500–$1,000/month going entirely to the down payment shortens the timeline by years.

Step 5 — First-time buyer programs

FHA Loan

3.5% down payment with 580+ credit score; 10% down with 500–579

Requires mortgage insurance premium (MIP) for life of loan if < 10% down

Conventional 97 / Fannie Mae HomeReady

3% down payment for first-time buyers with good credit

PMI required until 20% equity; can cancel

VA Loan

0% down for eligible veterans + service members + surviving spouses

No PMI; funding fee applies; best mortgage deal available

USDA Loan

0% down for homes in eligible rural/suburban areas

Income limits apply; guarantee fee vs PMI

State first-time buyer programs

Down payment assistance (grants or low-interest loans), closing cost help

Search HUD-approved programs for your state

IRA first-time buyer exception

Withdraw up to $10,000 from a Traditional IRA penalty-free for first home purchase

Taxes still owed on Traditional IRA withdrawals; Roth IRA contributions withdrawable anytime

Check your state housing finance agency for local first-time buyer grants and down payment assistance programs — some offer grants (free money, no repayment) of $5,000–$25,000 for qualifying buyers.

💰 Dime's Take

Saving for a house is a math problem with a timeline attached. Plug your numbers into the savings goal calculator, set the auto-transfer, and open the HYSA today — not next month, today. The HYSA interest alone on a $30,000 down payment at 4.5% APY is $1,350/year. You're leaving that on the table every year you keep it in a regular savings account.

Frequently asked questions

The standard advice is 20% down to avoid private mortgage insurance (PMI). But 20% isn't required — FHA loans accept 3.5% down, and conventional loans are available with 3–5% down. On a $350,000 home: 20% down = $70,000. 5% down = $17,500. The tradeoff with less than 20% down: PMI costs 0.5–1.5% of your loan annually until you reach 20% equity — typically $1,000–$3,000/year on a mid-size mortgage. Calculate whether the extra savings time to reach 20% costs more than years of PMI payments.

A high-yield savings account (HYSA) is the right answer for most people saving for a home within 1–5 years. HYSAs currently earn 4–5% APY, are FDIC insured, and have no risk of principal loss. Do not invest down payment money in stocks — a 20–30% market decline right before your planned purchase would set you back years. The stock market is for money you won't need for 5+ years. Your down payment fund is not that money.

Closing costs are fees paid at the finalization of a home purchase — separate from your down payment. They include lender fees (origination, underwriting), third-party fees (appraisal, title insurance, title search), prepaid items (homeowners insurance, property tax escrow, prepaid interest), and government recording fees. Total: typically 2–5% of the loan amount. On a $350,000 loan: $7,000–$17,500. Many first-time buyers forget to account for closing costs and are caught short. Save for both the down payment AND closing costs.

It depends on your savings rate and target. Example: targeting a $40,000 down payment (for a $200,000 home at 20% down) while saving $1,000/month in a 4.5% APY HYSA takes about 37 months. Saving $1,500/month: 24 months. Saving $500/month: 70+ months. Use our savings goal calculator to plug in your numbers and get a specific timeline. The fastest levers: save more each month, cut big expenses (can you house-hack or get a roommate temporarily?), and start earlier.
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