How to save for a down payment on a house

Set a target of your down payment plus 2% to 5% of the price for closing costs, then save it automatically in an insured savings account, not in stocks. On a $300,000 home with 10% down, that is about $39,000 of cash to close.

How much down you need

Conventional loans with 20% down avoid private mortgage insurance. FHA loans allow 3.5% down, some conventional loans 3%, and VA and USDA loans offer zero down for eligible buyers.

Closing costs come on top

Budget 2% to 5% of the price for closing costs, as the CFPB suggests. On a $300,000 home, that is $6,000 to $15,000 beyond the down payment.

Keep an emergency fund after closing

The CFPB suggests keeping at least three months of living expenses in savings after you buy. Do not count that money toward the down payment.

Retirement money has limits

The IRS lets qualified first-time homebuyers take up to $10,000 from an IRA without the 10% early withdrawal penalty, though income tax may still apply. That exception does not cover 401(k) plans.

Pick your target

Start with a realistic price from your budget, then choose a down payment share. Twenty percent down on a conventional loan avoids mortgage insurance and usually gets the best rates. A smaller down payment gets you in sooner but costs more each month and over the life of the loan.

Add closing costs of 2% to 5% of the price, plus a few thousand for moving and the first repairs. That total, not the down payment alone, is your savings goal.

Weigh a smaller down payment

The CFPB says you can choose how much to put down based on what works for you. Putting less down means paying mortgage insurance or a higher rate, but waiting years to reach 20% has a cost too if rents and prices rise in the meantime.

One middle path is 10% down, with a plan to remove PMI later. On a conventional loan, you can ask to cancel PMI once the balance is scheduled to reach 80% of the home's original value.

Where to keep the money

Down payment money needs to be there, in full, on the day you close. That rules out stocks for anything you need within a few years, since stock prices can fall sharply in a short time.

A high-yield savings account at an insured bank or credit union is the simplest home for it. Deposits are insured up to $250,000 per depositor, per bank, per ownership category. CDs and Treasury bills can work for money with a known date.

Find the money to save

Set a fixed automatic transfer the day after payday, then look for extra. Cutting rent with a roommate, selling a second car or redirecting a paid-off debt payment can add hundreds a month.

Windfalls help the most. A tax refund, bonus or gift sent straight to the house account can shave months off the timeline. If family helps, ask your lender early how they need gifts documented.

Look for down payment assistance

HUD notes that many state and local programs help with down payments and closing costs, often for first-time buyers or people under an income limit. Rules differ by program and place.

A HUD-approved housing counselor can walk you through the options in your area. Call HUD's counselor line at (800) 569-4287 or use its online counselor finder.