4 ways to save for a down payment

Buying a home is one of the largest and most important purchases most people make in their lifetime. Payments are spread over decades, so you gradually pay off the mortgage until you own the house entirely. However, you will need to make some significant upfront payments or get some down payment assistance in order to be able to purchase a home.

Here are some facts and figures to help you when you’re wondering how much you should save and how to minimize your upfront costs.

How to save for a deposit

How much you need for a down payment depends on your situation and the details of your loan. A US Department of Agriculture (USDA) loan does not require a down payment.1 With a traditional loan, you have to pay a higher down payment to avoid the cost of mortgage insurance. Most lenders require a 20% deposit to waive this requirement.

Saving cash is a good place to start, but there are other ways to speed up the process.

Create a savings plan

Calculate how much you will need to buy a home and then review your budget using that number in mind. Check how much you can put aside each month. Check out how you can limit your spending and increase your income to save more. Savings accounts don’t pay much interest, so a certificate of deposit (CD) or money market account might be a better choice for this type of big savings goal.

Calculate how long it will take you to save the amount you need once you’ve determined a reasonable monthly savings amount. You could be ready to buy in 20 months if you can save $1,000 every month and need $20,000.

Save tax refunds

Tax returns can be an opportunity to increase your savings and reduce the time it takes to buy a home. Using the example above, if you saved $1,000 each month and also received a tax refund of about $4,000 each year, you could shorten your savings period to just 12 months.

Borrowing against retirement plans

If you have a retirement plan, you can also take out a loan. Many 401(k) plan providers offer relatively inexpensive loans that can be used to buy a new home. This type of loan doesn’t affect your credit score and doesn’t count against your debt-to-equity ratio (DTI), both of which are important if you’re looking to get a mortgage. You can withdraw up to $10,000 from an Individual Retirement Account (IRA) when you first buy a home.3

However, remember that a 401(k) loan is backed by the balance in your retirement account, so if you don’t repay it on time, your savings will be used to pay off the loan.
This path is not without risk. Consider how much growth in your retirement savings you’re missing out on if you decide to use your retirement savings to pay down a house.

Ask your family

Starting in 2022, your parents or another family member can give you up to $16,000 per year with no tax consequences. If you have two supportive parents, each of them can give you $16,000 without paying gift tax. You could also give each spouse $16,000 tax-free. The most important rule about gifts for mortgage purposes is that they must not ask for any repayment in money or money’s worth.


One of the first steps when thinking about buying a home is to figure out how much you need to save. There are a variety of mortgage options to suit almost every budget and credit rating. Find out about reputable mortgage lenders, loan programs, and down payment assistance options to find out which path is best for you.