How to save for a down payment

You don’t have to dramatically change your life when saving for a house, but a few simple nips and tucks can get you there quicker.

Buying a house is still the American dream for most adults. Living in your in-laws’ basement to be able to afford it? Not so much. Must they go hand-in-hand? Fortunately, no. KSL Homes looks at how to save for a down payment — even if you’re renting.

How much do you really need?

Before you settle into a savings plan, determine the dollar amount you’ll need for a down payment. The median price for a single-family home in Utah is nearly $500,000; an ideal down payment would be at least 20% of the sale price, so you would need about $100,000. Yeah, that’s a lotta cash. But don’t freak out just yet.

For a first-time buyer, 5 to 10% is much more typical — and $25,000 seems a whole lot more attainable. Some lenders may even allow you to come in with as little as 3%. However, understand that any down payment less than 20% means you’ll likely need to purchase private mortgage insurance. This will add to your monthly mortgage payment until you’ve paid 20% of the loan amount (or surpass that in home equity).

Piggy banks are cute, but they don't give much back. Put your money in a savings account to earn some interest and increase your balance quicker.

Can I get some help here?

In addition to your own savings, you can take advantage of down payment assistance programs. Utahns may apply for a 0% interest loan through the state’s first-time homebuyer program, introduced in 2023. It offers $20,000 to be used as a down payment, to buy down the interest rate or to pay closing costs. To qualify:

• You have lived in Utah for at least one year
• You have not owned a home in the previous three years
• House price is under $450,000
• House is a new build

No payments are required until you sell the property or refinance your home loan; repaid funds go back into the program.

Look into career specific assistance programs such as the national Teacher Next Door grant. If you’re a teacher, whether for pre-K-12 or college classes, you can apply for up to $8,000 in grants and $10,000 in down payment assistance. There are no restrictions on home price or location. Even staff and administrators are eligible to apply.

Ask your loan officer about any other programs you may qualify for.

Government loans

There are a couple of federal loan programs available that are designed to help first-time buyers: FHA and VA. With an FHA loan, you’ll only need to come up with a 3.5% down payment. However, you’ll be required to pay a monthly mortgage insurance premium for the life of the loan, which could be as much as $100 per $100,000 borrowed.

If you’re a veteran or currently active military, you can apply for a VA loan, which only requires a minimal down payment, or sometimes none at all. You will need to pay a funding fee.

You’ve got to save a little

Regardless of the amount you stash, you’re more likely to reach your goal if you save consistently. A classic rule of thumb for savings: Set aside 10% of your earnings. It worked for “The Richest Man in Babylon,” it should work for you. If you get paid twice a month, put aside 10% per paycheck. 

Any extra income — Christmas bonuses, tax refunds, birthday cash — could go directly into your savings, too. If you get a raise, keep living on your original paycheck and put all the extra into your down payment fund. 

Maximize your savings with a certificate of deposit, or a high-yield checking, savings or money market account. Because, even though collecting coins in a glass jar works in the movies, wouldn’t you rather earn some interest?

Reconfigure your budget so you can put money into your house fund every month.

If you feel you don’t have any extra to put away, reconsider your budget. Chances are, you have non-essentials you can cut, and a few small changes can add up quickly.

• Pick a favorite streaming service or two, then drop the rest
• Eat out only for special occasions
• Reduce your clothing budget — thrift shop!
• Buy no-name food brands
• Cancel your gym membership and workout at home
• Go to the library instead of buying books
• Take staycations instead of vacations

Need to save even more? Look for a cheaper apartment or find a roommate. How about selling or renting some of your stuff on KSL Classifieds?

As with any big goal, saving for a house may take a while, so give yourself a realistic timeline. Two years? Five years? Decide what will work best for you — you don’t want to resent the house before you even move in.

Score a better deal

Even if you don’t have a large down payment, having a better credit score can help you afford more home. Lenders factor in both your down payment and score when deciding your interest rate, which in turn determines your monthly payment. Of course, the smaller the interest rate, the lower your payment.

Your score is determined by factors such as your debt-to-income ratio, as well as your payment history on credit cards and other loans. Aim for a score of 750 or higher to secure the best interest rate. If it’s lower, work to improve it as you save for your down payment: Keep up regular, timely payments for all your bills. Also, consolidate and reduce debt wherever possible. 

This and that

It’s tempting to throw all of your savings into the down payment, but keep in mind there will be a few additional expenses. You’ll have closing costs, for example, which are usually 3-6% of the total loan amount.

Once you’re in your new home, you’ll be responsible for all the utilities; be prepared for larger electricity bills. Also, you’ll no longer have a landlord to cover the charges for water, sewer and trash.

Other future expenses might include landscaping, particularly if you are purchasing a new residence. A previously owned abode may have some maintenance and repair costs. And, you’ll probably want some more furniture to fill all your new spaces.

Consider starting with a smaller house as your first home purchase.

Build on your house plans

Perhaps saving enough for a large, single-family home feels out of reach for now, but that doesn’t mean you’re stuck renting forever. Consider purchasing a smaller place to start, or even a condo or townhome. Once you’ve lived there for a few years, you will likely build some equity — the property will be worth more than you owe. You can then sell it and use the profit to purchase that mansion.

Location also makes a difference in prices. Houses in some of the more rural areas of Utah tend to cost less than along the Wasatch Front. In Weber and Cache counties, for example, the median price is closer to $400,000, while in Sevier and Carbon counties it’s below $300,000, according to the Utah Central Association of Realtors.

Save me the money

How to save for a house? Just get started. Make a commitment of how much you will set aside each week or month, be it a dollar amount or percentage of your income. The more consistent you are, the sooner your dream will happen. 

Keep tabs on housing prices, and find the neighborhood you’d like to live in, on KSL Homes.