According to real estate giant Zillow, the average home price in the United States is $320,662. While that may seem like a hefty dollar figure, consider this: that figure is a 19.6 percent jump from just one year ago. And experts predict that number will continue to rise upwards of 16 percent in the year to come.
So when you consider that the standard for a down payment is 20 percent, that means the average prospective home buyer in this country should expect to spend just over $64,000 on their down payment. And don’t forget: that’s just the upfront cost—the cold, hard cash you’ll need to secure a mortgage and get the keys to your brand new place.
Compare that against the median household income in the United States: $67,521. That means the vast majority of people would have to save an entire year’s worth of wages just to save up enough for a downpayment.
When you think about it that way, the task can feel pretty unattainable. But luckily, there are some smart strategies you can employ to stash away that cash—without eating ramen noodles all year long. Here are some things you can try:
1. Set a budget
One of the most important things you can do to get your spending in check is to create a budget. When you establish a ceiling for your spending, you’re less likely to spend frivolously—not just from week to week, but also from month to month. Ultimately, this will lead to healthier spending habits from year to year that become second nature, rather than super restrictive in nature.
2. Open a separate savings account
You’ll need a place to put all of the funds you save—and sometimes an existing savings account isn’t the best place. Consider opening a separate savings account just for your down payment savings. This way, you’ll have a very clear picture of what you have—and you’ll be less likely to tap into it (even inadvertently) for something else.
3. Try frugal February
Or March, or April, or May… you get the picture. No matter what month you do it, the concept is the same: commit to a month-long money diet. While you’ll, of course, still have to pay for essentials, this kind of exercise is a great way to limit non-essential spending for a short amount of time. This sort of restrictive exercise can help you quickly save a ton of money, without living a restrictive lifestyle for so long that it begins to feel unsustainable. But it doesn’t have to be a total bummer—just get a little creative. For example, rather than go to your favorite restaurant, cook up something special at home. Think homemade pasta or pizza, or even sushi. Or, dress like you’re on a tropical island and make frozen cocktails and fish tacos.
4. Put your hobbies to work
A sure way to save more money? Make more money. While it’s not always possible to take on a second full- or even part-time job, you can try to add an additional revenue stream by turning your hobby into a side hustle. Are you a great artist? Or maybe you have a sizable social media following and can earn affiliate revenue? Make an effort to scale your hidden talents in a way that nets you a little bit of extra income, and put those earnings directly into your down payment savings account.
5. Pay off your debts
Though this may sound a bit counterintuitive when you’re trying to save money, consider this: the more debt you have, the more interest you’re paying, and the less you’re saving. Plus, there’s another home-buying ramification at play here.
Even if you have the cash for a down payment, you could get denied for the rest of the mortgage for a number of reasons, including no credit history, poor credit history, a non-salaried job, or even a poor debt-to-income ratio. Debt-to-income ratio, commonly referred to as DTI, is the percentage of your monthly gross income that goes toward paying off your debts. For example, if you pay an average of $1,000 per month in debts and make $10,000 per month, your debt-to-income ratio is 10 percent.
The approved DTI varies from lender to lender, but they’re typically looking for a debt-to-income ratio of 36 percent or lower, with no more than 28 percent of that debt going towards a mortgage or rent payment.