The inability to come up with a down payment and closing costs is one of the top three reasons non-homeowners are still renting, a recent Bankrate survey shows. It’s not impossible to cover these costs, though. The funds for a down payment on your first home might be closer than you think.

How much should you save for a down payment?

While you might have heard you need 20 percent of the home’s purchase price as a down payment (and there are a few reasons why it’s ideal to put down that much), the reality is that most mortgages have much smaller minimum down payment requirements:

Conventional loans

If you qualify for a conventional loan, you could put down just 3 percent of the purchase price as a down payment. If you’re buying a $300,000 house, that spells a down payment of $9,000. There’s a catch, though:

You’ll need to pay private mortgage insurance premiums each month until you’ve accumulated 20 percent equity ($60,000).

FHA loans

If you’re considering a loan backed by the Federal Housing Administration (FHA) and you have a credit score of at least 580, you’ll only need a down payment of 3.5 percent of the purchase price. On a $300,000 house, that comes out to $10,500. All FHA-insured loans also require  mortgage insurance, both an upfront premium and then an annual premium you’ll pay for the term of the loan. It’s important to note: You’ll need to come up with a 10 percent down payment on an FHA loan if your credit score is between 500 and 579.

VA and USDA loans

If you qualify for a loan backed by the Department of Veterans Affairs (VA), you can buy a home without a down payment. Likewise, if you’re buying a home in a USDA-designated area and qualify for a USDA loan, you won’t need to make a down payment.

Jumbo loans

If you’re planning to borrow a mortgage for a more expensive property, you might wind up needing a jumbo loan. This type of mortgage exceeds limits set by the Federal Housing Finance Agency and tends to have a higher down payment requirement. The specific amount varies by mortgage lender, but you’ll likely need to put down at least 10 percent of the purchase price.

How long should you plan to save for a down payment?

How long it’ll take you to save for a down payment depends on:

  • How much money you can set aside
  • How much you can or want to spend on a home
  • How much you plan to contribute to the down payment

Where you’re buying will play a big role in how much time it takes you to save, too. Consider that the median down payment in California as of March 2022 was $103,000, while the median down payment in Mississippi was less than $7,000.

If you’re on a tight budget already, coming up with a 10 percent or 20 percent down payment might take a really long time. So, if you want to save enough money in just a year or two, plan on a low-down payment loan, and consider these tips:

10 ways to save for a down payment

1. Park the savings somewhere you can earn more money

Before you start socking away funds, think about the best place to stash them. Compare high yield savings accounts, money market accounts and CDs. While traditional CDs come with penalties for early withdrawals, that could actually prove helpful in this case: With the additional restriction in place, you might avoid the temptation to dip into your down payment savings for other expenses.

Be mindful of the timeline, though. If you want to buy a house within the next two years, say, you’ll want to look at 18-month CDs. That way, you’ll have an extra buffer if you decide you can buy even earlier.

2. Ladder your CDs

If you decide to keep your down payment money in a CD, you could maximize earning power by opening different CDs at varying maturity dates. Instead of one big CD, for example, spread your money into three-month, six-month and one-year certificates. This is called laddering, a strategy that gives you the flexibility to adjust your investment as rates change. Laddering also allows you to lock in a higher rate. When rates aren’t so favorable, laddering keeps you from being stuck for long with low returns.

CD rates aren’t super high today, but they’re expected to rise as the Federal Reserve continues to raise interest rates this year. CDs are also FDIC-insured and don’t have the same risk and  volatility as the stock market.

3. Automate your savings

One of the best ways to save for anything — including a down payment — is to set it and forget it. If you receive a regular paycheck, ask your employer to direct a portion of that payment into a savings account. If you’re a freelance worker or independent contractor, set up a recurring transfer from a checking account to a savings account to establish the routine.

4. Look for down payment matching programs

The road to saving up for a down payment doesn’t have to be a solo journey. Depending on where you bank, you might be able to find a matching program in which the bank or lender contributes a specified amount for every dollar you put toward your home purchase. For example, Lower offers up to a $500 match for homebuyers.

5. Search for assistance in your state or city

There are numerous programs for homebuyers struggling to save for a down payment, especially first-time buyers. If you can meet certain income limits, you might be able to get help from the housing agency in your state, too. There are deferred loans (loans you won’t pay back until you sell the house or you’re finished paying off the mortgage), forgivable loans (loans with a balance that gets wiped away if you live in the home for a certain period of time) and other  down payment assistance options.

6. Scrutinize your expenses

If you want to save more, find ways to spend less. That means taking a hard look at your monthly banking statements to identify where you can cut. Do you really need a subscription to Netflix, Hulu, Disney+ and every other entertainment service? How often are you actually using your gym membership? Can you start making coffee at home instead of grabbing one at the cafe down the street each morning? While these are seemingly small expenses, every bit counts.

7. Request a raise

We’re in the midst of the Great Resignation, and many employers are struggling to retain talent. It’s an employee’s market right now, so put that power to work. Just make sure you do your homework and base your request for a raise on your accomplishments and the company’s pay scale, not your housing needs.

8. Ask for a gift

Many first-time homebuyers have turned to family members for help with a down payment. If a family member or friend is willing to give you some funds for your home, be sure to document this in a gift letter for your lender.

9. Press pause on other savings goals

If you’re decades away from leaving the workforce, it might make sense to consider shifting some of your retirement savings now toward your more immediate homeownership goal. This should be only a temporary saving strategy — one that you shift back toward retirement once you move into your new home.

If you have a considerable nest egg, tax law allows you to withdraw up to $10,000 in IRA funds to buy your first home. If you’re married and you’re both first-time buyers, you each can pull from your retirement accounts, meaning a potential $20,000 down payment.

Even better is the IRS definition of first-time homebuyer: Technically, you don’t have to be purchasing your very first home. You can qualify under the tax rules as long as neither you nor your spouse has owned a principal residence at any time during the three years prior to the purchase of the new home. In these instances, Uncle Sam waives the penalty for early withdrawal, but with regular IRAs, you will have to pay tax on the money (plus a penalty if you’re under 59-and-a-half). Withdrawals from Roth IRAs, however, are tax- and penalty-free.

If your money is in a 401(k), avoid taking any money out, no matter how badly you want to own a home. Those withdrawals are subject to a 10 percent tax penalty.

10. Move back home

The last tip on our list might feel like a last resort, but it’s truly one of the best ways to save money for a down payment: reducing or completely cutting out housing expenses.

With rental prices rising across the country, it might be time to consider whether sleeping in your childhood bedroom again can be the difference-maker in saving up your dollars. The average monthly rental fee for a one-bedroom apartment was $1,751 as of May 2022, according to  Rent.com. If you were to ditch that payment for a full year, you’d be sitting on more than $21,000 for your down payment. Once you’re settled in, just make sure you invite your family over for a thank-you dinner.