How to Save for a Down Payment

Are you looking to buy your first home? It's hard to know where to start, and it's been drilled into your head that you need to save for an elusive down payment. This intimidating down payment, coupled with closing costs, can make a first step toward buying seem stressful.

How much do you need to save? By now, most people don't realize you don't always need 20% down to buy a house. There are a lot of great programs to help make first-time homebuying attainable, but that doesn't mean you can buy a house with NO cash. Below, we'll walk through the ins and outs of what money you'll need upfront and how to save for it.

What upfront costs should you expect?

When saving for your down payment and closing costs, don't forget the other expenses that naturally come with moving. Remember expenses like moving trucks, home repair and decorating costs, and any "big ticket" items (like new appliances) that could be necessary.

The goal when buying a home shouldn't be to deplete your entire savings. When evaluating your budget, it's important you still have that "rainy day fund," even after all moving costs are considered.

How to prep for the upfront costs of buying a home:

• Look for ways to save. Evaluate your monthly budget and see if there are ways to reduce expenses, placing that extra money in a savings account dedicated to your homebuying costs. Consider enrolling in an automatic savings plan and having a portion of your pay automatically transferred into savings.
• Reduce other higher interest rate debt. Before taking on a mortgage, try paying off other debt (especially credit cards). By chipping away at these monthly expenses, you'll have more money to allocate toward your homebuying goals.
• If you're renting, take a look at your current lease. Are you coming up to the end of your lease? Does this fit into your savings timeline? If not, consider looking for cheaper housing and putting the leftover rent money into your savings fund. Compare the cost of renting vs. the real cost of buying a home here.
• Consider a staycation this year. Instead of taking a big (and sometimes expensive) trip, consider staying closer to home. Save on airfares and hop in the car next time wanderlust strikes. Chances are some adventures are right at your doorstep.
• Turn your hobby into a side hustle. Your hobby could be earning you money. Turn your passion into another source to help fund your dream of buying a home. 
• Use gifts from family members. Some loan programs allow borrowers to use gift money to make down payments. Generally, the gifts have to come from immediate family members.
• Create a separate savings account for your homebuying goal. Consider opening a separate account to add a barrier to protect your money from yourself.
• Make a plan to put your "bonus" toward your down payment. Earmark your tax refund, end-of-year bonus, or any other "bonus" funds directly toward your down payment savings. Knowing where that money is going before you receive it makes you more likely to set it aside for savings when it does come in.
• Keep track of your down payment. Take extra care to document the sources for any money used for the down payment or closing costs, especially any funds you received as a gift. Noting that the down payment comes from your savings and that you will have savings or assets left over gives a lender confidence in your strength as a borrower and your ability to repay the loan.
• Know your options. Virginia Credit Union partners with some down payment assistance programs that can help you cover your down payment. Talk to a mortgage loan officer to see if you could qualify.

Remember, buying your first home shouldn't be something you rush into. If your savings plan doesn't look feasible, consider extending your time frame or reevaluating what you're looking for in your house.

If homeownership is your dream and you’d like tailored guidance to help map out your path, consider talking with a homebuyer counselor through our partner GreenPath Financial Wellness! Maybe you're still weighing the pros and cons of renting or buying or need to evaluate the costs of each. When your savings begin to add up, and you think you're almost ready, learn more about what to expect in the homebuying process and then start a conversation with a mortgage loan officer.