How Do People Afford Houses? Tricks to Save a Down Payment

How do people afford houses? This is easily the most expensive purchase that most of us will ever make. In many areas of the country, it will cost hundreds of thousands of dollars to get into a new place. Even though you aren’t required to pay for the full purchase upfront, even saving for a down payment can be a challenge. 

Fortunately, there are loan options that feature smaller down payments such as the FHA, VA, and USDA loans. You could also scale back your retirement savings, buy a less expensive home, or boost your income with a side hustle. Automating your savings and having a detailed budget also helps you to save more. 

If you are ready to dive into your first home purchase, here is everything you need to know about saving up for a down payment! 

How Do People Afford Houses? Smaller Down Payment Options

How do people afford houses? The biggest hurdle for most individuals is scraping together enough money for the down payment. This can be a huge expense, especially if you have other debt that you must work on paying down simultaneously. Student loan debt, credit card debt, and an auto loan can easily consume all of your extra finances. 

This is where lower down payment options can come into play. 

Most people think of the need for a conventional mortgage without private mortgage insurance (PMI). To qualify for this, you typically need to put down a beefy 20 percent of the purchase price of the home. On a $200,000 house, that can mean you need $40,000 plus closing costs. 

Fortunately, there are three other options you might want to consider. All three feature much smaller down payments that can make purchasing a house more accessible. Consider asking your lender about one of these loan programs if down payment is what is holding you back. 

FHA Loan

The FHA loan is insured by the Federal Housing Administration and is offered through one of their approved lenders. Many major banks participate in this program, and it can spell good things for prospective homebuyers who don’t have enough money for a conventional mortgage product. 

With this type of loan, your credit score can make the difference in how much you must put down on your purchase. Borrowers with a credit score between 500 and 579 must put down at least 10 percent. If your credit score is over 580, you can get away with a down payment as low as 3.5 percent. 

This takes your down payment from $40,000 with a conventional loan product to just $7,000 if your credit score is over 580. 

FHA Loans have requirements for minimum credit score, down payments, debt ratio, and MIP

The disadvantage to choosing the FHA loan is that you will have higher mortgage insurance than if you were able to put down a larger down payment. You will pay a mortgage insurance premium for the lifetime of the loan if you put down less than 10 percent. This can add up to thousands of dollars over the course of thirty years. 

VA Loan

Qualified servicemembers may qualify for the VA loan offered by lenders and secured by the United States Department of Veterans Affairs (VA). Those who qualify for this loan product will be pleasantly surprised by the down payment required. The truth is that the VA does not require any type of down payment when using this loan product. 

You can purchase a house with no money down whatsoever. 

This loan product also does not require any private mortgage insurance, regardless of how much money you choose to put down on the home. This can be a huge benefit as PMI often costs more $30 to $70 per $100,000 spent on the property. 

As an even better bonus, the VA loan also has extremely low-interest rates. This will save you quite a bit of money when you consider the full thirty-year loan term. 

USDA Loan

If you don’t mind living in a rural area, the United States Department of Agriculture offers a special program. You can search for eligible properties on their website.  The property must be your primary place of residence, which is often no problem for those who are struggling to pay for a new home. 

Much like the VA loan, the USDA loan does not require a down payment for eligible properties. 

If the property needs a little work, you can finance the cost of repairs into your loan. You may also finance your closing costs or ask the seller to cover these extra fees. Getting into a home with no money down is as easy as finding a rural area near you that qualifies for this loan program. 

How Do People Afford Houses?

Scale Back Retirement Savings

When it comes to saving for retirement, it is recommended that you put away 15 percent of your income each month. Trying to save for both retirement and the purchase of a new home can seriously limit your spending. Instead of attempting to do both, consider cutting back on how much you are saving for retirement for a given period of time. 

Retirement savings are excellent because you make more money the longer your funds are invested. Cutting back on retirement savings should not be a long-term fix to your financial issues. 

Depending on your retirement savings account, you may even be able to withdraw money from it to help cover the cost of your down payment. An IRA allows you to withdraw up to $10,000 for the down payment of your house without incurring the early withdrawal penalty. However, you must pay tax on the withdrawal. 

Buy a Less Expensive Home

If you are having a hard time affording the down payment on a house, the solution might be quite simple. Purchasing a less expensive home allows you to put down less money, especially if you do this along with choosing a low down payment loan option. 

Consider how much house you really need. You should never be spending more than 30 percent of your gross monthly income on housing. 

Maybe you could get away with purchasing a smaller home right now. In the meantime, you can live in this home and build equity. A few years from now, you can sell it and upgrade to a nicer or a larger home. A starter home can be a great option that is priced lower, even though it may have less square footage or may need some repair work. 

Automate Savings Payments

You pay your bills on time each month, so why not pay yourself? Automating your savings payments ensures that you will be putting aside a certain amount of money every month. This is a quick way to ensure that you do not accidentally spend it frivolously on entertainment or morning lattes. 

Set up a savings account at a different bank than your checking account. This makes it much more challenging for you to access those funds quickly. If possible, set it up at a bank that is across town so that you aren’t tempted to swing by and withdraw your money as often. 

Once you have a new savings account set up, you need to set up automatic transfers. Pick a day each month where you know you will have money coming in. For example, you might choose your second payday each month. Organize a transfer to take place on this date each month. You can watch your savings account grow! 

For more savings, find places where you can use your Cash App card for free in our complete guide. 

Pick Up a Side Hustle


If you are wondering how people afford houses, the answer might be easier than you think. You might need to find a way to increase your monthly income so that you can afford to put more money back in savings for a down payment. 

Picking up a side hustle can be an easy way to put your skills to good use. For those who have a knack for writing papers, you can pick up freelancing work on Upwork. If graphic design is your talent, reach out to local businesses about designing marketing materials. Make a craft and sell it on Etsy. 

The trick is figuring out what you are good at and transforming it into an income opportunity. No matter what your talent may be, there is a market for it somewhere. You just have to be creative enough to tap into it. 

Even if you can’t find a talent that could bring in some cash flow, you might be able to pick up a part-time job in the evenings and on weekends. You could work at your local gym to score a few extra hours of pay and a free membership. Serving coffee at the local coffeehouse is even an option. 

It can be tiring to work two jobs, but the extra cashflow may be worth it to you. You can put back everything you earn from your second job directly into a savings account for your new home. 

How Do People Afford Houses?

Live Below Your Means

Is it possible that you are currently living above your means? Your spending might be out of control. That could be the reason you are struggling to put any money back in your savings. You need to come up with a way to live below your means. That means you need to put together a good budget. 

Most people have no idea how much they actually spend each month. They just know that they have money coming in, but there is nothing left over at the end of the month. Getting a grip on your finances can be time-consuming, but it is ultimately worth it. 

Start by creating a detailed budget for how you are currently spending your money. Go through old bank statements and categorize your spending. Look at popular categories like going out to eat and entertainment. Find out how much you are really spending in each category. 

From here, it is time to slash your spending. Find areas where you are spending more than you would like and cut them out. Instead of cable, pay for a subscription to a streaming service like Netflix or Hulu. Start making your morning coffee at home. Stop going out to eat and instead plan to make meals you love at home. 

Cutting your budget can feel painful at first, especially if you aren’t used to reining in your spending. However, it can ultimately allow you to put more money back in savings which can be automated each month. You won’t be tempted to spend money that is no longer in your account. 

How Do People Afford Houses? 

If you are early in the stages of considering homeownership, you might be wondering how do people afford houses? The good news is that it may not be as expensive as you think. Try a couple of these suggestions to see your savings start to really add up. 

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