A down payment on a home is a percentage of the purchase price paid upfront. The larger your down payment, the less money you’ll need to borrow, the lower your mortgage interest rate will likely be, and the more home equity you’ll start out with. While a large down payment is a great homebuying goal, finding ways to save can take time.
If your goal is to save for a down payment in one year, it’s important to set a target, stick to your budget, and explore resourceful ways to contribute to your down payment savings.
How Much Should You Save For a Down Payment?
Before you start saving, it’s important to know how much of a down payment is required.
Data from the National Association of Realtors found that the average down payment on a home was 14% in 2022.Your actual down payment will depend on a variety of factors, including the housing market you’re buying in, the type of loan you have, and the size of that loan.
Down payment requirements by loan type
Loans have different down payment requirements. For some people, one year may be enough time to save a 20% down payment to avoid private mortgage insurance. For others, it may be a more realistic goal to save for the minimum requirement.
“Most people think they must have way more money than they actually need for a down payment,” says Phil Greely, a real estate broker with Realogics Sotheby’s International Realty in Seattle. “20% is the gold standard, but 3.5% down programs exist and even 0% in some cases.”
Here’s how down payment minimums vary by loan type:
Minimum Down Payment Requirements for Common Types of Mortgages
|Minimum Down Payment
|Minimum Credit Score
|Conforming conventional loan
|3% (or 20% to avoid PMI)
|Nonconforming conventional loan (aka jumbo loan)
|Varies, but usually about 10% (or 20% to avoid PMI)
|680, though it mostly depends on the lender
|Federal Housing Administration loan (aka FHA loan)
|3.5% with credit scores of 580 or higher; 10% for credit scores of 500 to 579
|Department of Agriculture loan (aka USDA loan)
|Department of Veterans Affairs loan (aka VA loan)
|No official requirement, but lenders may set their own minimums
|No official requirement, though lenders may set their own minimums
Getting Started on Saving For a Down Payment in 1 Year
It’s important to get off on the right foot when you’re saving for a down payment in one year. You should start by setting a target, creating a budget, and being smart with your savings.
Set a savings goal
Start by taking stock of your current savings. Determine how much of that money can be immediately allocated to a down payment fund — keeping in mind other homebuying costs, such as closing costs and moving costs.
Then, estimate how much you want to save for a down payment. Also work with your real estate agent to identify a realistic savings goal.
The difference between what you have now and your down payment goal is how much you need to save.
Create a budget
Creating a budget is a necessary step to ensure you can meet your down payment savings goal. You’ll need to review your income sources — such as your job, any side gigs or freelance work, and earnings from investments — and subtract your expenses from the total. The remaining amount is what you have available to save each month.
While some expenses — like utilities and groceries — are predictable, things like discretionary spending may vary from month to month. Sticking to a budget requires discipline to ensure you don’t overspend. If you can maintain your income, spending, and savings goals each month, you’ll be well on your way to saving for a down payment in a year.
Open a high-yield savings account
Saving is more effective when your money is earning interest. Opening a high-yield savings account can help your money grow over the course of 12 months.
There are several options that can give your down payment a boost, including:
- High-yield savings accounts. Online-only banks often offer savings accounts with higher interest rates, and credit unions traditionally offer higher interest rates than banks because they are owned by their members.
- Money market accounts. Money market accounts combine the best of both checking and savings accounts, offering higher interest rates than traditional savings accounts plus the ability to write checks. On the downside, these accounts may require a higher minimum deposit, not offer a debit card, or limit the number of checks you can write per month.
- Certificates of deposit. A CD usually offers higher interest rates than traditional savings accounts by holding deposits for a guaranteed amount of time. However, you might not be able to add more money to a CD, and there are often early withdrawal penalties if you take money out before the maturity date.
Automate your savings
If you struggle with money management, you could consider automating your savings. Most banks and credit unions offer automatic savings programs, also known as reoccurring account transfers. With an automated savings plan, you can choose the frequency of your deposits and the amount you save each time. This can help keep you on track to meeting your down payment savings goal in 12 months.
The First 3 Months
Once you’ve gotten started by setting a goal and creating a budget, the first three months of your yearlong plan should focus on maximizing your income. This can be done by negotiating a raise at work, finding side jobs, downsizing where you can, and cutting extraneous expenses.
Negotiate a raise at work
The first place to try boosting your income is at your current job. It may be easier to negotiate a raise at work than start a new position — but you need to do your research. Instead of focusing on salary, emphasize the value you bring and outline how you’ll contribute to the company’s future.
Pursue alternative streams of income
Not everyone has the time or energy, but finding an alternative source of income can help you save for a down payment faster.
Some common income streams include:
- Getting a part-time job. Working part time for personal obligations — like saving for a down payment — is the third-most popular reason why Americans choose to pick up additional hours each year, according to the Bureau of Labor Statistics.
- Freelance work. With more jobs going digital, picking up freelance work has become an easier way to make additional income. Writing articles, keeping records for small businesses, or offering translation services are examples of work that can help you increase your down payment savings.
- Monetizing a hobby. Do you have a talent for crafts? If you’re already investing time in a hobby, you can try monetizing it and putting the earnings toward a future home.
- Pet sitting. If you like working with animals, you can research apps that connect you with clients who need pet services such as in-home sitting, dog walking, and boarding.
- Ridesharing. Uber, Lyft, and other ridesharing apps allow you to set your own hours. It’s important to check your local regulations to determine what rules apply to your side venture.
- Taking surveys. Companies often compensate people for feedback on their products. The payout from joining focus groups or taking surveys could be worth a few minutes of your time.
Downsize where possible
Downsizing doesn’t necessarily mean you need to move to a smaller home. Instead, it can mean relatively small changes to your daily life.
For example, instead of buying lunch every day, packing one from home can cut down on your spending. You can also save money by downgrading your memberships and subscription services to a less expensive tier.
Start cutting expenses
Instead of downsizing, you can choose to cut expenses altogether. Some places to look include:
- Your cable bill. Do you regularly watch all those channels? Call your provider to see if you can negotiate a lower bill or reduced services — or cancel your plan outright and pocket the savings.
- Subscriptions and memberships. How many subscriptions do you have but never use? Canceling streaming services you don’t watch and memberships you don’t use can help you get closer to buying a home.
- Transportation costs. Performing regular maintenance on your car can help prevent the need for major repairs. Eliminating any reliance on taxi or rideshare services can also help you save money on transportation. Instead, you could try biking or hitching a ride with friends.
6 Months In
At six months in, you’re halfway to your goal of saving for a down payment within the year. Now is the time to start reevaluating your progress and adjusting to make sure you reach your goal on time.
Check on your progress
The biggest step in this phase is to check in with your savings plan. Are you halfway to where you want to be with your down payment? Or have life circumstances forced you to fall behind on saving? It’s important to make sure your goal is still realistic, given the amount of time you have left to meet it.
Save at tax time
In 2022, the IRS issued tax refunds to over 71% of the population, at an average of $2,153 per individual. If you’re in this majority, you’ll likely get a cash refund at tax time — which can be applied toward your down payment savings to make your goal a little easier to reach.
9 Months In
With only three months to go before you need to make your down payment, you should be preparing to buy a home and move. In addition to getting preapproved for a mortgage, browsing homes, and making an offer, now is the time to finish off your plan.
Sell your clutter
If there’s stuff you don’t want to move, you could sell it for cash — and get yourself closer to saving for a down payment in a year. You can choose to hold a yard sale or garage sale, take items to a local flea market, or list them on websites like Craigslist and eBay.
Ask for cash gifts
If there’s a special occasion coming up — like your birthday or wedding — and you’re short of your goal, you can try asking for cash gifts from family and friends. Lenders often allow borrowers to fund part of their down payment through gifts from the people in their lives. However, you’ll need to provide a signed statement that the money is a gift and not a loan, and the giver can prove where the money came from.
The Finish Line
Congratulations! You’ve saved up, shopped around, and found the perfect place to call home — all in the span of a year. However, the deal isn’t done yet. If you’re not completely ready to make the down payment, you could search for down payment assistance programs to close the gap.
Look into down payment assistance programs
Many major cities, regions, states, and nonprofits offer down payment assistance programs to help people purchase a home. The Department of Housing and Urban Development maintains a list of local homebuying programs by state that you can check out.
Each program has different qualifications. For example, some are designed for first-time homebuyers, and others require buyers to have a minimum down payment already saved.
“Many states, cities, and lenders have down payment programs that cover the cost partially if not entirely and are rolled into a mortgage or a second trust,” says Karen Szala, a real estate agent at Coldwell Banker Realty in Washington, D.C.
Make your down payment and close on the home
Coming to the signing table is the final step before you can get the house keys. At this point, you will have received your closing disclosure, taken a final walk-through, and prepared to sign all the paperwork.
Be sure to review all the documents and ask any questions you may have. Once everything is signed and delivered, you can wire your down payment to your mortgage lender and begin moving into your new home.
FAQ: How To Save For a Down Payment in 1 Year
Here are the answers to frequently asked questions about saving for a down payment in one year.
It can be, depending on the assets you have today, how much you make, and how much you can save over the course of 12 months. To determine if it’s plausible, talk to a financial advisor or a real estate agent in your area.
One of the common mistakes people make is not researching the market to determine how much they will need for their down payment. Understanding market conditions and price trends can help you estimate your savings target to cover both the down payment and closing costs.
Another common pitfall is losing sight of your savings goals. Indulging in extra expenses — or taking on additional debt — will cut into your savings, taking you further from saving for a down payment.
The Bottom Line on Saving For a Down Payment in 1 Year
Your plan to save for a down payment in a year can not only get you into a home of your own faster, but also grow your wealth in different ways. From building equity you can bank on for years to come, to creating memories with your friends and family in your new home, achieving this goal may pay for itself.