By Janet Siroto
Feb 17, 2022

(Getty Images)

Buying a house typically requires some serious savings. After all, with the median home price hovering at $375,000, a 20% down payment amounts to $75,000. Yes, you can put down less. (The national average is 12%, although some loans allow as little as 3%.) However, in today’s competitive market, more cash upfront can give you an edge and help make your offer stand out.

It’s no surprise that among younger homebuyers, 30% say that pulling together the down payment is the most challenging step in buying a home, according to the National Association of Realtors®.

Yet as daunting as it may be to amass this pile of cash, there are plenty of tactics that can help you get there faster—and with fewer sacrifices than you might think.

Some of the advice that follows is tried and true, while other tips are fairly new, in the form of nifty apps that’ll line your pockets with extra cash with little effort. See which ones fit, so you’re armed and ready once you get out there to make an offer.

1. Start a house fund—and pay it first

Regardless of how much money you’re trying to save, you probably know that the funds in your checking account can have a way of disappearing. To keep this from happening, it’s smart to set up a separate savings account for your down payment.

“Automatic recurring transfers into a dedicated savings account [are] a great, simple strategy for systematically building a down payment,” says Tanza Loudenback, a certified financial planner and journalist.

While you can transfer money from your checking account to your house fund, an easier move is to automate these payments regularly, for example, every two weeks, if that’s when you get paid by your employer.

“If you get paid regularly and can set it up so that part of your direct deposit goes into a [house fund] without you even feeling the loss, even better,” adds Loudenback.

2. Keep your house fund in a safe, low-interest-bearing account

Once you have a house fund going, you might be wondering how to make it grow, while it’s sitting around waiting for you to find the right house. After all, inflation is at a 39-year high, at 7%.

So does that mean you should invest your house fund in stocks to keep up? As logical as that may seem, no. Stocks do go up, but they can also go down—and what if that downturn happens right as you’re ready to make an offer?

“Anytime you want access to your money in the short term—one to two years or less—you should consider a high-yield savings account,” or HYSA, says Jay Zigmont, a certified financial planner and founder of the financial planning firm Live, Learn, Plan. “Shop around online, and there are some great options.”

You won’t make much interest on your savings, he notes, but the money will be there when you need it.

If your savings time frame is three to five years or more, Zigmont says you can consider investing your money in stocks, but then you take on market risk. Certificates of deposit are another option, but keep in mind that if you spot your dream home earlier than anticipated, CDs come with early withdrawal penalties.

“Your money needs a job, and if its job is to be there for a house down payment, it is doing its job in an HYSA,” he says. “The past few years have seen wide swings in stock returns, and the challenge is that if you need the money in a downswing, you could be hurt.”

3. Crowdfund your down payment

You could have loved ones who are happy to pitch in on your homeownership goal. If you put the word out to friends and family, they might contribute to your down payment rather than, say, taking you out for dinner on your birthday.

HomeFundIt is one option designed to help you crowdfund your down payment. Created by the mortgage banking firm CMG Financial, it works by having you pre-qualify for a mortgage online and then building and promoting your money-raising campaign. (Note: You have only one year after your first contribution to close on a home, and you must borrow from CMG Financial for your home purchase.)

Another option not tied to a particular lender is Feather The Nest, which allows you to spread the word to your social network, as with a GoFundMe campaign—with a target amount, deadline, and updates on how close you are to your goal.

4. Look for cash incentives

Friends and family aren’t the only ones who’ll pitch in on your homebuying efforts. Some companies will also pony up cash incentives.

One example is Lower, which has an HYSA insured by the Federal Deposit Insurance Corp. It’s called HomeFund and has a 0.75% annual yield. When you sign up, it will gift you $500 to put toward closing costs when buying a home. From there, this app also allows you to shop around for various lenders to find a mortgage that’s right for you.

5. Save your spare change

More and more aspiring homebuyers are using apps to help save for a down payment, and they’re cleverly designed to minimize feeling the pinch. For instance, Acorns rounds up your credit card payments to the nearest dollar and funnels this spare change into a designated account you can earmark for a house. Over time, it adds up!

“Whether it’s the gains from rounding-up apps or even the money earned on Rakutan—which pays you back to shop through their site—people are making a game out of it,” says Tami Bonnell, co-chair of EXIT Realty Corp. International.

6. Turn your rent into a down payment

Another option geared for renters is Bilt Rewards. This app, the first of its kind, turns paying rent on time into “points” that can then be turned into cash you put toward a down payment. (There’s also a Bilt Mastercard.)

Bonus: This service can help you build your credit score, which lenders will check to see how reliably you pay rent. This serves as evidence that you’d responsibly pay a monthly mortgage bill, too.

7. Search for local down payment assistance programs

Many local governments offer down payment assistance programs and grants. Often these are income-based, but some provide forgivable loans for improving run-down properties. Some also offer financial assistance for teachers, firefighters, health care workers, and other professions.

“I normally advise families to search their local housing department’s website for these programs,” says Jason J. Krueger, a certified financial planner and an adviser with Ameriprise Financial Services in Madison, WI. “For example, I live in Dane County, so I would search ‘Dane County down payment assistance’ to see what comes up.”

8. Check your withholding taxes

If you get a tax refund every year, consider lowering your exemptions and taking home more cash. Sure, you won’t get that fun refund in the spring, but the extra money coming your way can go toward your down payment. Siphon off that amount via the automatic deduction mentioned earlier.

9. Consider a last-ditch retirement-plan payout

You’ll want to tread carefully here. Most financial pros don’t recommend raiding retirement funds for a down payment. That said, some IRA and 401(k) plans have a one-time provision to tap into a retirement account for a down payment without a penalty.

These funds, once withdrawn and spent, will be hard to replace. This could jeopardize your financial future, so consider this option only after serious thought. Meeting with a certified financial planner can be a good idea before making this move, to see if you have any alternatives.