Best Way to Invest Money for House Downpayment

xi Min Read | Dec 22, 2021

Tired of renting? You're non solitary. The force per unit area to buy a home right at present is real—especially in this crazy market. Plus, taking Fluffy up and down iv flights of stairs—multiple times a 24-hour interval—is getting a flake one-time. Is it too much to inquire for a patch of grass to call your own?

From the sounds of information technology, you might exist ready to be a homeowner. At that place's but one problem: You don't accept a down payment. And how are you lot supposed to save for a house when rent is so freaking expensive?

Heed, we get it. Saving up for a house is difficult work (and might take a scrap more time than you want it to), simply it tin exist done!

How to Salve for a Business firm

Saving up a downward payment for a firm is easier than yous call back—especially when y'all're following a programme! But the key is knowing how much you need and, more importantly, how much you can actually afford.

Psst: This is where your zero-based budget comes in handy. But let's non get off topic. If you're wondering how much you should spend on a house, you want to think near the numbers 15 and 25.

Come across how much business firm you tin can afford with our costless mortgage estimator!

You want a15-year fixed-rate mortgage that'southward no more than than25% of your monthly take-domicile pay (including chief, interest, belongings taxes, homeowner's insurance, private mortgage insurance and even homeowners association fees).

And here'southward why: A 15-year fixed-rate conventional loan is the overall lowest cost mortgage—it saves you tens of thousands (even hundreds of thousands) of dollars in interest fees compared to other types of mortgages.

Also, the reason your mortgage payment should never exist more than than 25% of your monthly take-dwelling pay is because yous'll have plenty of breathing room in your budget to tackle other fiscal goals—and keeps your firm from owning you.

v Steps to Saving for a Down Payment

Now that you know the type of mortgage yous need, it's fourth dimension to start saving for your future dream business firm. It may audio intimidating to salvage so much coin. But we promise—all you need is a plan. Ready? Allow's become started:

Pace ane: Create a Articulate Savings Goal

The best way to save for a down payment is to know the exact dollar amount you actually need. Then, what's a good down payment? In a perfect world, you could walk up to the forepart door, hand the possessor a fistful of cash, and pay for it outright. But that's not exactly realistic (for everyone).

So if you lot're in the majority of the population who can't purchase a house in cash, y'all should starting time by asking yourself these four questions:

How much should I spend on a house?
The respond depends entirely on your lifestyle, your income, how you spend money, how you budget and how much house you're looking for. Like we said earlier, the goal is to spend no more than than 25% of your monthly have-domicile pay. And that's going to expect dissimilar for anybody.
How much should I salve for a down payment on a business firm?
Nosotros recommend a down payment of xx%. This gets you out of paying for something chosen private mortgage insurance (PMI). PMI is an extra fee added to your mortgage to protect your lender in case you lot end making payments.
Tin't swing 20%? That's okay. Just don't get beneath 10%—otherwise, you'll be stuck paying extra in interest and fees, putting you farther in debt for decades!
How long will information technology take me to save for that downward payment?
This is upwardly to you lot, only patience and hard piece of work really practice pay off! You should set a goal to relieve a nice downwards payment in two years. Effort not to drag information technology out much longer than that though. You've got plenty of other coin goals to have on next—similar your retirement and the kids' higher funds (if you have kiddos).
Where tin I put coin for a downward payment?
Simply like an emergency fund, you'll desire to put your downwardly payment in a identify that's easy to admission—but non too like shooting fish in a barrel. Remember: A down payment isnot an investment. So stashing that cash in a money market savings business relationship will become the job washed. You're non going to make tons on interest, but you won't lose money either.
So, allow's say you accept 24 months before you lot desire to buy a abode, and you determine to save $xl,000 to cover your down payment (plus closing costs and other moving expenses). Now that you've got your goal fix, information technology's time to fast-runway your savings!

Stride two: Streamline Your Budget

Let'due south outset with the money y'all're already bringing in every calendar month. That's right—let's flex your budgeting muscles!

You'll be amazed at how much money you lot find when you pay attention to your spending. Hither are some ideas to aid yous tighten your spending temporarily while you piece of work on saving for a house:

Take a break from the gym: $sixty per month
Relieve going out to eat for special occasions: $200 per month
Trim your clothing budget: $100 per calendar month
Purchase generic: $160 per month
Cut the cablevision: $110 per calendar month

These tips could salve you $630every month! That adds up to more than $15,000 over the grade of 24 months. Now, go creative and retrieve up even more than means you can salve!

Footstep 3: Printing Pause (Temporarily) on Retirement Savings

If you lot're already saving for retirement, this might experience actually weird. Subsequently all, at Ramsey, we commonly recommend you commencement investing 15% of your household income for retirement later on getting your full emergency fund in place.

Only if you're planning on buying a house in the near hereafter, information technology'southward okay if yous want to hold off on your retirement savings and instead put those funds toward your down payment. Call up: Yous're in charge of how gazelle intense you want to be. If that'southward what you decide to do, that'due south okay! Information technology's just temporary. Once you're sipping coffee in your new breakfast nook, y'all tin get right back to putting that xv% toward your retirement goal. Simply make sure this is only a one-to-two-year detour, non a v-year pause!

Retrieve of it like this: If you're currently investing $500 a calendar month into 401(chiliad)s and IRAs but instead put that toward your down payment savings, you lot could save around $12,000 in two years. That'due south a large boost for your down payment!

Pro tip: Don't borrow from or cash out your retirement accounts in lodge to relieve up for a downward payment. Not only will you get hit with taxes and early withdrawal penalties, but you'll harm the long-term growth of your retirement savings—costing you hundreds of thousands of dollars at retirement. Yikes.

Step four: Boost Your Income

If yous're looking for another manner to turbocharge your income, in that location's naught similar picking up a side gig or a 2d job. Your side hustle doesn't have to be torture either. When yous're thinking upwards ideas, offset with the stuff y'all love doing already. Check out these ideas:

Like driving? If you don't mind carting strangers around or making deliveries, you could make some sweet cash on a flexible schedule through companies like Lyft or Uber.

Enjoy didactics? Search online for tutoring jobs or ways to teach English to speakers of other languages. If you have advanced degrees, yous could earn fifty-fifty more.

Dearest pets? Let your friends and co-workers know you're available to watch Rover the next time they're out of town. Get some fur therapy (and make money at the same time).

At present, you're probably wondering: Is information technology worth it? (That's like asking us if Dave Ramsey hates credit cards.) Yes—it'due south absolutely worth it!

Allow's say you start a side hustle and put in xvi hours a calendar week making $12 an hour. That'south an actress $153.60 per week—afterward taxes! Proceed that up and y'all'll have more $15,974 for your downward payment savings in only 24 months.

Pace five: Cutting the Extras and Save Even More

It'due south time to get tough and cut out some extra spending.Ouch! It might injure, merely go along your heed on your why—home sweet home. Here are a few ideas to go you lot started:

Skip the summer vacay. This one is going to hurt, just in the long run, it'll exist worth it. Skip the fancy summer vacation and throw that money in savings instead. You could pocket $2,000 from that alone.^ane

Sell some stuff. Do you take a lot of actress "stuff" collecting grit around your house? Sell. Information technology. All. Take advantage of online sites like thredUP, Poshmark or fifty-fifty Facebook Market place for gently used dress and eBay for the rest.
Garage Sale. Is your neighborhood having a sale soon? A garage sale can bring in some extra dough like nobody's business. Scoring $500 from a Saturday morning garage sale is a win in our book.
Save all the money you earn from your annual enhance or bonus.Planning to get a little Christmas bonus? What nigh a bonus for a job well done? No matter what that extra cash is for, yous tin can tell that big-screen TV to expect. Stash your bonus money in savings instead. That could be an easy $one,500 bump!

If y'all do all three of those, you'll save an extra $4,000! Worth information technology? Absolutely.

How to Save a forty,000 Downwards Payment in Two Years

Cut your expenses	$15,000
Pause retirement contributions	$12,000
Earn extra income from side hustle	$12,400
Sell stuff / skip splurges	$4,000
Total savings	$43,400

For more tips on saving for a new home, check out our Saving for a Down Payment Guide. It will assistance you map out a plan, give you lot fifty-fifty more practical tips, and keep you on track to reaching your goal. That white sentinel argue doesn't seem similar such a faraway dream after all, does it?

Other Costs to Consider When Saving for a Downwards Payment

Brace yourself. A down payment isn't theonly expense you need to save for before ownership a firm. Just don't worry, the other costs are smaller and won't have much longer to save for:

Closing costs. On average, buyers pay 3–4% of a home'southward buy price for closing costs.^two When you close on a firm—which is basically just signing all the paperwork that officially makes your new home yours—you have to pay for expenses like loan origination fees, credit reports, underwriting fees, appraisal fees and title fees.

Moving expenses. Yous can always salvage money on moving costs by asking friends for help. Otherwise, hiring movers tin can cost anywhere from $240 to $2,000 depending on how much stuff you're moving and how far away y'all are from your new home. (If y'all're movingreally far away, you could pay upwards to $eight,000!)³ If you go that route, be certain to get quotes from local moving companies alee of time to help with budgeting.

Keep in mind: The seller might really cover your closing costs. But don't depository financial institution on it. That usually but happens if the seller is in a hurry to move or if it's an culling to repairing something that comes up during the home inspection.

Is It Better to Pay Off Debt or Save for a Down Payment?

If y'all have any debt, easily down the smartest matter you lot can do is pay it off before saving for a down payment. Why? Because the biggest expenses that go far the style of people saving for a home purchase are all debt related: student loans (51%), credit card debt (45%) and car loans (38%).^iv The absolute best way to free up your income for savings is to pay off debt as fast as possible!

And so, go one step further and stash abroad three to half dozen months' worth of your expenses as a full emergency fund. Last year, homeowners had to spend $1,640 on emergency home projects.^five Imagine cough up the toll of that emergency on acme of losing a job and however trying to pay your mortgage—no thank you! An emergency fund saves you from all that.

Sure, it might experience like a bummer to hit pause on the excitement of saving for a home and replace it with the dullness of paying off debt and building up an emergency fund. But trust the states, doing this will aid you save your down payment faster—and protect you from a lifetime of stress.

Make the About of Your Downward Payment

When you lot've worked so hard to save upwards a big downwardly payment, the concluding thing you lot desire to do is make a bad financial investment. That's why picking an experienced existent estate pro—who has your best interests at center—is cardinal.

We'll match you lot upward with the perfect teammate through our Endorsed Local Provider program. We've got some of the all-time in the business . . . and nosotros'll match you up for free. Don't take a take a chance your aunt's neighbor's cousin who barely got his license. Because when it comes to making 1 of the biggest financial investments in life (like buying a domicile), you don't want to work with merely anyone. You want to piece of work with a pro. Find your local existent estate agent here.

Ramsey Solutions

Well-nigh the writer

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal evolution since 1992. Millions of people accept used our financial communication through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 meg weekly listeners.