# Ready to make a down payment? Do these 4 things first By Chelsea Levinson, JD | 2022-10-18 > For smart homebuyers, saving up for a down payment is just the beginning. You should also plan for the many costs of purchasing a house, including closing costs, moving expenses, and emergency savings. ## Key Takeaways ## Key takeaways - Buying a home comes with many expenses besides a down payment. - Gather your savings as a jumping-off point for financially planning a home purchase.  - Then decide your down payment amount based on your savings and financial goals. - Plan for other expenses like closing costs, moving expenses, emergency savings, and more. **Meta description:** Planning a down payment? Use this checklist to check your credit, set a savings plan, avoid common mistakes, and get pre-approved — before you buy a home. Your down payment is one of the biggest financial moves you'll ever make — and what you do *before* writing that check matters just as much as the amount itself. Rushing into a down payment without preparation can cost you thousands in higher interest rates, unnecessary insurance premiums, or missed assistance programs. So what should you do before making a down payment? This checklist walks you through seven essential steps to strengthen your finances, avoid costly errors, and position yourself as a competitive buyer. Whether you're [saving for a house down payment](https://www.opendoor.com/articles/how-much-to-save-for-house) for the first time or gearing up for your next purchase, start here. [Get your offer](#) ## 1. Check and Strengthen Your Credit Score Your credit score directly affects the mortgage rate you qualify for — and even a small rate difference can mean tens of thousands of dollars over the life of a loan. Before you start shopping for homes, know exactly where you stand. **Pull your credit reports.** You're entitled to free weekly reports from all three bureaus at [AnnualCreditReport.com](https://www.annualcreditreport.com). Review each one for errors — incorrect balances, accounts that aren't yours, or late payments that were actually on time. **Dispute any inaccuracies.** Filing a dispute is free and can boost your score quickly if errors are dragging it down. **Take steps to improve your score:** - **Pay down revolving balances.** Aim to keep credit utilization below 30% — ideally below 10%. - **Avoid opening new credit accounts** in the months leading up to your mortgage application. - **Keep old accounts open** to maintain a longer credit history. - **Set up autopay** on every bill to prevent missed payments. A score of 740 or higher typically qualifies you for the best conventional mortgage rates. If you're below 620, focus on credit repair before moving forward — it could save you significantly more than rushing to buy. ## 2. Determine How Much You Can Afford to Put Down There's no single "right" down payment amount. The best choice depends on your loan type, financial reserves, and how quickly you want to build equity. Understanding [how much it costs to buy a house](https://www.opendoor.com/articles/how-much-does-it-cost-to-buy-a-house) overall will help you set a realistic target. Here's how common down payment levels compare: - **3%–3.5% (FHA or conventional low-down-payment loans):** Lowest barrier to entry. You'll pay private mortgage insurance (PMI) on conventional loans or a mortgage insurance premium (MIP) on FHA loans. - **5%–10%:** A middle ground that lowers your monthly PMI cost. Learn more about [whether 5% is enough for a down payment](https://www.opendoor.com/articles/briefs/is-5-percent-enough-down-payment). - **20%:** Eliminates PMI entirely and often secures better loan terms. **What is PMI?** Private mortgage insurance protects the lender if you default. On a conventional loan, it typically costs between 0.5% and 1.5% of the loan amount per year. It drops off automatically once you reach 20% equity. ### Does Putting 20% Down Still Make Sense? The 20% rule is one of the most persistent myths in homebuying. While putting 20% down eliminates PMI and reduces your monthly payment, it isn't always the smartest move — especially if it drains your savings or delays your purchase by years. **When a lower down payment may be smarter:** - Home prices in your market are rising faster than you can save. - You have a strong credit score that qualifies you for low PMI rates. - You'd rather keep cash reserves for [repairs, renovations](https://www.opendoor.com/articles/eight-ways-to-finance-your-home-renovation-project), or emergencies. **When 20% makes sense:** - You can comfortably afford it without depleting your emergency fund. - You want the lowest possible monthly payment. - You're in a competitive market where a larger down payment strengthens your offer. ## 3. Get Pre-Approved for a Mortgage Getting pre-approved is one of the most important steps to take before making a down payment. It tells sellers you're a serious, qualified buyer — and it tells *you* exactly how much home you can afford. **Pre-qualification vs. pre-approval:** - **Pre-qualification** is a quick estimate based on self-reported financial information. It's a starting point, not a commitment. - **Pre-approval** involves a lender verifying your income, assets, debts, and credit. You'll receive a formal letter stating how much you're approved to borrow. **Documents you'll typically need:** - Recent pay stubs (30 days) - W-2s or 1099s from the past two years - Federal tax returns (two years) - Bank and investment account statements - Government-issued ID **Why it matters:** In competitive markets, a pre-approval letter can make the difference between a winning and losing offer. It also helps you understand [how to determine what to offer on a house](https://www.opendoor.com/articles/how-to-determine-what-to-offer-on-a-house) with confidence. ## 4. Build a Savings Strategy for Your Down Payment Hoping to "figure it out" isn't a plan. A structured savings strategy with clear timelines and benchmarks helps you reach your down payment goal without guesswork. **Start with a target number.** If you're aiming for 5% down on a $350,000 home, you need $17,500 — plus cash reserves for [closing costs](https://www.opendoor.com/articles/how-much-are-closing-costs-for-seller), [earnest money](https://www.opendoor.com/articles/earnest-money), and moving expenses. **Build a timeline:** - **12-month goal:** Save roughly $1,460/month - **18-month goal:** Save roughly $970/month - **24-month goal:** Save roughly $730/month **Automate your contributions.** Set up automatic transfers to a dedicated savings account on payday. Money you don't see is money you don't spend. **Use a high-yield savings account.** In 2026, many high-yield savings accounts still offer rates above 4% APY. Parking your down payment fund here earns you money while you save — with no risk to your principal. ### Saving for a Down Payment Tips That Actually Work Generic advice like "spend less" rarely moves the needle. These strategies do: - **Follow the 50/30/20 rule.** Allocate 50% of after-tax income to needs, 30% to wants, and 20% to savings and debt repayment. Temporarily shift that to 50/20/30 (prioritizing savings over wants) to accelerate your timeline. - **Redirect windfalls.** Tax refunds, bonuses, and cash gifts can shave months off your savings timeline. - **Cut one major expense.** Downgrading your car, pausing subscriptions, or picking up a short-term side gig can each add $200–$500/month to your fund. - **Track your progress monthly.** Seeing your savings grow reinforces the habit. ## 5. Research Down Payment Assistance Programs Thousands of homebuyers qualify for down payment assistance (DPA) programs and never apply. These programs — offered by state housing agencies, local governments, and nonprofits — can provide grants, forgivable loans, or low-interest second mortgages to help cover your down payment. **Types of assistance:** - **Grants:** Free money that doesn't need to be repaid. - **Forgivable loans:** Second mortgages that are forgiven after you live in the home for a set period (often 5–10 years). - **Deferred-payment loans:** No monthly payments; repaid when you sell, refinance, or pay off the mortgage. **Who qualifies?** Eligibility varies by program but commonly depends on income level, home purchase price, location, and first-time buyer status. Some programs define "first-time buyer" as anyone who hasn't owned a home in the past three years. **Loan programs with low or no down payment:** - **FHA loans:**[3.5% down with a credit score of 580+](https://www.consumerfinance.gov/owning-a-home/loan-options/) - **VA loans:** 0% down for eligible veterans and active-duty service members - **USDA loans:** 0% down for homes in eligible rural areas Search for programs in your area through [HUD's local homebuying resource page](https://www.hud.gov/buying/localbuying). ## 6. Prepare Your Financial Documents Lenders don't just check your credit — they scrutinize your entire financial picture. Getting your documents organized ahead of time speeds up the mortgage process and prevents last-minute surprises. Understanding [how long it takes to buy a house](https://www.opendoor.com/articles/briefs/how-long-does-it-take-to-buy-a-house) makes it clear why preparation matters early. **Gather these documents before applying:** - **Bank statements (2–3 months):** Lenders look for consistent income deposits and stable balances. Large, unexplained deposits raise red flags. - **Tax returns and W-2s (2 years):** These verify your income history. - **Pay stubs (30 days):** Proof of current employment and earnings. - **Debt documentation:** Student loans, car payments, credit card statements — anything that affects your debt-to-income (DTI) ratio. - **Gift letters:** If a family member is contributing to your down payment, you'll need a signed letter confirming it's a gift, not a loan. **Know your debt-to-income ratio.** Most lenders prefer a DTI of 43% or lower. Add up all monthly debt payments and divide by your gross monthly income. If you're above 43%, focus on paying down debt before applying. Brush up on other [real estate terms you should know](https://www.opendoor.com/articles/real-estate-terms-you-should-know) as you prepare. ## 7. Avoid These Common Down Payment Mistakes Knowing what *not* to do is just as important as knowing what to do. These down payment mistakes trip up buyers at every experience level: - **Making large purchases before closing.** Buying a car, financing furniture, or opening new credit cards changes your debt-to-income ratio and can jeopardize your mortgage approval — even after pre-approval. - **Changing jobs during the mortgage process.** Lenders want to see stable employment. A job change, even to a higher-paying role, can delay or derail your application. - **Draining your emergency fund.** Putting every dollar toward the down payment leaves you vulnerable to unexpected repair costs, medical bills, or temporary income loss after closing. - **Forgetting about closing costs.** Your down payment isn't your only upfront expense. Closing costs typically range from 2%–5% of the purchase price. Learn about [how long closing takes](https://www.opendoor.com/articles/how-long-does-closing-take) and what fees to expect. - **Skipping the home inspection.** A [thorough inspection](https://www.opendoor.com/articles/home-inspection-checklist-for-buyers) can uncover issues that affect the home's value — and your willingness to buy. Don't waive this to save a few hundred dollars. - **Not shopping multiple lenders.** Rates and fees vary significantly between lenders. Getting at least three quotes can save you thousands over the life of your loan. ## Your Quick-Reference Down Payment Checklist Use this summary to track your progress before making a down payment: - ✅ **Check your credit score** — pull reports, dispute errors, and improve your score - ✅ **Decide how much to put down** — compare 3.5%, 5%, 10%, and 20% options - ✅ **Get pre-approved** — gather documents and get a formal pre-approval letter - ✅ **Create a savings plan** — set a target, automate contributions, use a high-yield account - ✅ **Research assistance programs** — check state, local, and federal DPA options - ✅ **Organize financial documents** — bank statements, tax returns, pay stubs, gift letters - ✅ **Avoid common mistakes** — no big purchases, no job changes, don't drain savings ## Frequently Asked Questions ### How much should I save for a down payment? It depends on the loan type and home price. FHA loans require as little as 3.5% down, while conventional loans may require 5%–20%. On a $350,000 home, that's between $12,250 and $70,000. Budget an additional 2%–5% of the purchase price for closing costs. For a deeper breakdown, see [how much to save for a house](https://www.opendoor.com/articles/how-much-to-save-for-house). ### Can I use gift money for a down payment? Yes. Most loan programs allow gift funds from family members, but you'll need a signed gift letter confirming the money is a gift and not a loan. The lender may also require documentation showing the transfer of funds. ### What happens if I can't afford a 20% down payment? You can still buy a home. Many buyers put down far less than 20%. You'll likely pay private mortgage insurance (PMI) on a conventional loan, but PMI can be removed once you reach 20% equity. FHA, VA, and USDA loans also offer low- or no-down-payment options. ### How long does it take to save for a down payment? The timeline depends on your savings rate, target amount, and local home prices. On average, first-time buyers take two to five years to save for a down payment. Creating a structured savings plan with monthly benchmarks helps you stay on track. ### Does a larger down payment guarantee a lower interest rate? Not always, but it helps. A larger down payment reduces the lender's risk, which can lead to more favorable terms. However, your credit score, debt-to-income ratio, and loan type have a bigger impact on the rate you receive. ### Should I pay off all my debt before saving for a down payment? Not necessarily. Focus on paying down high-interest debt and lowering your debt-to-income ratio below 43%. You don't need to be completely debt-free to qualify for a mortgage — but carrying less debt strengthens your application and improves your rate. ### What is earnest money, and is it separate from the down payment? [Earnest money](https://www.opendoor.com/articles/earnest-money) is a deposit you make when your offer is accepted, showing the seller you're serious. It's typically 1%–3% of the purchase price and is usually applied toward your down payment or closing costs at closing. ### When is the best time to start preparing for a down payment? Start at least six to twelve months before you plan to buy. This gives you time to improve your credit score, build savings, research assistance programs, and get pre-approved — all of which make you a stronger, more confident buyer. [Get your offer](#) ## Start Your Home Search With Confidence Preparing for a down payment isn't just about saving money — it's about building the financial foundation for a stronger offer, better mortgage rates, and less stress throughout the buying process. Work through this checklist step by step, and you'll be ready to make your down payment with confidence. **Ready to take the next step?**[Browse homes on Opendoor](https://www.opendoor.com) and find your next home today. --- *Originally published at [https://www.opendoor.com/articles/briefs/do-these-things-before-down-payment](https://www.opendoor.com/articles/briefs/do-these-things-before-down-payment)*