How to Save for Your First Home in Today’s Market

Saving for a down payment on a house

Google “obstacles for first-time buyers,” and it won’t be long before you’re reading about the difficulties of saving for a down payment on a house. So, no. It’s not just you.

Just about every first-time home buyer without significant financial support is finding it hard to come up with a down payment and closing costs. Indeed, it’s almost certainly one of the leading reasons why the National Association of Realtors® 2024 Profile of Home Buyers and Sellers reached a startling conclusion:

“First-time home buyers in the last year shrunk to a historic low of just 24 percent of all buyers. Prior to 2008, the share of first-time buyers had a historical norm of 40 percent. Underscoring the hurdles to entering the housing market, first-time home buyers’ median age reached an all-time high of 38 years old. In the 1980s, the typical first-time home buyer was in their late 20s.”

But don’t feel discouraged. It’s taking longer to save up the funds to buy a home, but it’s still perfectly doable for most people. Read on for some tips and insights that might help you become a homeowner sooner than you think.

Challenges to saving for a down payment on a house

Back in 2017, an Australian property tycoon made headlines when he suggested that aspiring homeowners could afford a house if they cut back on discretionary spending. “When I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each,” he said.

Maybe not. But his judgmental approach won him few friends and a whole pile of critics because the reality is way more complicated than your avocado habit.

Inflation and rising living costs

According to Apartment List’s March 2025 National Rent Report, “the typical rent price remains nearly 20 percent higher than its January 2021 level.” Depending on where you live, your rent may have risen more quickly or slowly.

True, average hourly earnings of private-sector employees have risen similarly quickly. They increased to $35.93 an hour in January 2025 from $30.05 in January 2021, according to the Economic Policy Institute’s reading of official figures. And that’s very close to a 20% raise over that period.

So, you can’t blame rents for restricting your savings unless you live somewhere where they’ve recently risen faster than the national average — or if your income has risen more slowly than average.

And the same applies to many prices: salaries and wages have mostly caught up or even overtaken price inflation. For example, the last time average gas prices were lower than in March 2025 was in June 2021, according to the Federal Reserve Bank of St. Louis.

However, we all know that some prices have risen especially steeply. Look at eggs. And, if you’re buying a lot of goods and services that have experienced higher-than-average inflation, you might have less to save each month.

Increasing home prices

Rising home prices have likely done the most to hurt your saving for a down payment on a house. Those have shot up.

Look at average sales prices for houses sold in the U.S., according to the Federal Reserve Bank of St. Louis:

• First quarter of 2000 — $202,900
• First quarter of 2020 — $383,000
• Fourth quarter of 2024 — $510,300

Imagine if you’d begun saving for a 3% down payment on the average home at the start of 2020. Your target would have been $11,490. Now, suppose you managed to save $11,490 by the end of 2024. You’d instead need $15,309 to buy the same home, a shortfall of nearly $4,000.

Almost as scarily, closing costs are mainly calculated as a percentage of the amount you’re borrowing: typically, 3%-6%. So, the higher amount you’d need to borrow creates a double-whammy.

Of course, if you already owned a home in 2020, you’d be delighted to see home prices rising so steeply. Your “equity” (the difference between your home’s market value and your mortgage balance) would have increased quickly, adding significantly to your net wealth.

You might see this as a spur to get on the housing ladder as quickly as possible, even if mortgage rates are currently unfriendly. Unless home prices suddenly slump, you’d be right.

Unpredictable income and job instability

According to a 2024 report from Velocity Global, “59 million Americans freelance—that’s 36% of the total American workforce.” That includes everyone from freelance writers to Uber and Lyft drivers and from independent IT contractors to couriers. It’s not just musicians and performers doing gigs who operate in the gig economy.

Most of them (56%) say they have a different main source of income and use their gig work to top up their earnings. Maybe some of them are saving for a down payment.

But that still leaves 44% who rely wholly or mainly on their gig economy work for their living. And 44% of 59 million Americans is 26 million people.

For them, setting a savings goal is tough. It’s a very lucky freelancer who knows how much they will earn from one month to the next. And long-term independent contractors tend to have little job security.

Of course, even permanent employees can face job insecurity. In past recessions, many employers made tough decisions that led to widespread job losses. However, those on zero-hours contracts or similar at-will agreements often face even greater uncertainty.

Solutions to help you when saving for a down payment on a house

Reassess your budget and cut expenses

Did you cringe when you read the word “budget”? We get it.

Budgeting often gets a bad rap, bringing to mind spreadsheets and extreme penny-pinching.

However, it’s really not like that anymore. You can find apps to effortlessly replace the spreadsheet. And taking back control of your money frees you to spend more on your priorities and less on things you don’t value. Right now, saving for a down payment on a house is your No. 1 priority.

Read How to set and stick to a budget, and give it a go.

Some ways to make savings include:

• Reviewing and cutting unnecessary subscriptions
• Downgrade premium subscriptions. For example, consider accepting commercials on Netflix to pay less
• Cook at home more. Take outs and restaurant meals can be occasional treats rather than your main source of calories. Home cooking is often healthier, too
• Take home-made sandwiches or salads to work along with a thermos of your favorite coffee
• Set spending limits on Amazon and other outgoings
• Consider trading in your gas guzzler SUV for a more economical car

None of these is mandatory. If you love your SUV, keep it. But try to eliminate spending on things you don’t need and only vaguely want.

Increase income streams

Earlier, we mentioned that some working in the gig economy might be doing so to boost their saving for a down payment on a house. We were serious.

If your job isn’t paying enough for you to make meaningful contributions to your savings account, consider taking some gig work. Imagine if you could put aside $100 more a week for some extra work. You’d have $5,200 at the end of year one, and $15,600 at the end of year three. That’s more than the $15,309 we earlier calculated you’d need to currently buy the average home.

Of course, you have to pay tax on that. But some mild budgeting could see you where you need to be pretty quickly.

Automated savings plans

There’s a saying among financial advisors: “Pay yourself first.” Imagine you set up an automatic payment into your savings account for each payday. Then you pay your bills. And what’s left is your spending money.

Yes, if you overspend, you can transfer money back out of your savings account. But you should feel guilty when you do so, and, gradually, you could adjust your discretionary spending to meet your saving goals.

Down payment assistance programs

If you’ve never heard of these, your life might be about to change. The National Association of Realtors explains: " ....many buyers qualify for down payment assistance programs, which offer low-interest loans or grants to help with upfront costs. There are more than 2,000 of these programs across the country, including those offered by state, county and city governments.”

“Typically, purchasers who qualify for down payment assistance meet several criteria. For example, they may be first-time buyers, have low-to-moderate incomes and be acquiring a primary residence. Beyond those requirements, each program has its own eligibility rules and application processes. And each offers a different range of benefits.”

Learn more by reading Down Payment Assistance Programs & Grants by State 2025.

Live with family or roommates

You may hate the cliché of adult children living in their parents’ basement. But roughly 1 in 3 adults ages 18 to 34 in the U.S. are living with at least one of their parents, according to the Census Bureau.

And there’s a good reason: it’s either the cheapest place to live. Imagine how quickly you’d be saving for a down payment on a house if you were paying little or no rent.

Of course, that’s not an option for everyone. But most of us can save on rent and living expenses by pooling them with roommates.

Renting smartly

Renting smartly means choosing an up-and-coming neighborhood rather than one that’s already established. You can save significantly by moving to an area with more modest homes to rent.

Also, consider rent-to-own deals. Learn more: Rent-To-Own Homes: What They Are and How They Work. Just pay attention to the cons as well as the pros, and proceed with caution.

Debt management

If you currently have a big debt burden, you’ll face two significant problems:

1. Saving for a down payment on a house is even tougher than normal if you’re struggling to keep on top of your debt payments
2. High levels of existing debt can kill a mortgage application, even when you have saved a down payment. At best, such levels will likely see you paying a higher mortgage rate than someone who’s unencumbered

Often it’s better to pause your savings efforts to pay down debts, especially high-interest ones such as credit card balances. And doing so could help your credit score, too.

Discover effective debt reduction strategies by reading Decrease Your Debts and DTI Before Applying for a Mortgage.

Saving for a down payment on a house: The bottom line

Unless you’re eligible for a VA loan (current service member, veteran or surviving spouse) or a USDA loan (buying a rural property on a modest income), you’re going to need a down payment. These can be as low as 3% of the purchase price (Freddie Mac and Fannie Mae) or 3.5% with an FHA loan.

But even 3% is a lot of money when you look at current home prices. And most first-time home buyers find saving that much a real challenge.

Those who are eligible for down payment assistance programs can find themselves homeowners faster than they dreamed possible. For those who don’t qualify, however, the path to homeownership can feel like a long, difficult journey.

But don’t despair if you’re one of those. Use the strategies we’ve suggested above to boost your savings rate as high as you can comfortably afford.