Today’s homebuyers face challenges that make it tough to budget for a house with a high-interest mortgage. With US home prices on the rise, it's harder to cover closing costs, let alone an upfront down payment. In February, the median down payment was $55,640, up 24.1% from a year ago.
Rita-Soledad Fernández Paulino, a personal finance educator, was happily renting for years without a set deadline to buy a home. In 2021, she and her husband shifted gears and decided to prioritize homeownership. They've been saving for a down payment and are now on track to buy a house they can comfortably afford in the next few years.
"I’m Mexican American, and in my family, buying a house is the number one priority," said Fernández Paulino, who goes by Soledad.
Soledad says this is a common feeling in immigrant households. Particularly for those with origins in countries that don't have a stock market, owning a home is the key to building wealth, the most valuable asset that can be passed on to the next generation. In 2021, Hispanic homeowners derived 66% of their net worth from home equity, compared to 41% for white households.
As a money coach of four years, a member of CNET's Expert Review Board and founder of Wealth Para Todos, Soledad focuses on helping BIPOC women and LGBTQ+ communities reach financial independence. On a personal level, she's determined to live the life she wants while taking careful steps toward making such a huge investment.
"I think a lot of people don’t get their finances in a place where they understand what they want their lifestyle to be, and then they add a huge mortgage on top of it," she said. "It can be really overwhelming for them.”
Saving for a home down payment without rushing
Based in California, Soledad is acutely aware of the high cost of living.
From her perspective, it's better to rent for longer and start the homebuying process with a strong financial safety net, rather than rush into buying a house that could become a headache later on. That means making sure she can afford the cost of homeownership in the long term.
Here are a few tips that Soledad recommends you do first if you're looking to buy a home.
1. Stock up your emergency fund first
Before saving for a future home purchase, Soledad advises paying off debt and establishing an emergency fund with around six months' worth of living expenses.
At 23, Soledad was just starting out as a teacher in New York. Facing pressure from her family to buy a home, Soledad opened a high-yield savings account and deposited the stipends she got from her job. Since she didn’t have an emergency fund or other dedicated sinking funds, she dipped into her down payment savings when she went on trips or needed to cover expenses.
Things changed when a medical emergency left Soledad on bed rest in her early 30s. During that time, she was given a book on personal finance. While she didn’t agree with everything, especially the undertones of money guilt, it was a good starting point and inspired her to develop her own financial literacy.
After creating her first budget, Soledad wanted to get rid of her only debt, so she paid off $23,000 in student debt in four months. Then she prioritized saving six months' worth of living expenses in an emergency fund.
Having a fully stocked emergency fund will help you afford your monthly mortgage payments in the case of a job loss or medical crisis.
You don’t need to be debt-free to purchase a house. However, having less debt will lower your debt-to-income ratio, or DTI, which can help you secure a lower mortgage rate.
2. Set a goal for your down payment amount
A 20% down payment isn’t required to get a mortgage or buy a house, but that’s the number Soledad is working toward.
With a larger down payment, Soledad can take out a smaller loan and likely secure a lower interest rate from her future mortgage lender. Plus, it means she’ll have a significant amount of equity in her home from the get-go.
A larger down payment can also make you a more competitive buyer, which is particularly important in housing markets where inventory is sparse and bidding wars are the norm.
Soledad wants to keep her future monthly mortgage payment at or below $4,800, which is what she pays in rent right now. By using her current housing payments as a benchmark, she knows she can comfortably afford that number without having to cut down on other spending or tap into her savings.
When speaking with a loan officer, Soledad was told that if she put 20% down on a $800,000 house, her mortgage payment would be around $4,000 a month. That would be great, but she couldn’t find any houses in her area of Los Angeles with an asking price much below $1 million.
"Could I put less down on a more expensive house? Yes. But then my mortgage payment is going to be higher and we’d need to sacrifice other things like vacations or dining out," said Soledad.
To determine a general price range, research home prices for the area you’d like to live in. You may consider moving farther away or downsizing to stay within your budget. Especially if this is your first home purchase and you have a smaller budget, be open to making compromises.
💰🏠 Down payment vs. mortgage payment
We took a look at how different down payment sizes can affect your future mortgage payments using CNET’s mortgage calculator. For this example, we used the same mortgage rate for each down payment size. However, some lenders may offer higher or lower rates depending on your loan amount.
| Down payment on a $500,000 home | 30-year fixed mortgage rate | Monthly mortgage payment | |
| 5% down payment | $25,000 | 6.5% | $3,401 |
| 10% down payment | $50,000 | 6.5% | $3,243 |
| 20% down payment | $100,000 | 6.5% | $2,927 |
3. Save for other homebuying costs, too
Soledad wants to have enough money saved to cover all costs associated with purchasing a home, like closing costs and property taxes, as well as furniture and future maintenance costs. After bundling those expenses into her homebuying budget, she wants to save at least $290,000 before purchasing a home.
She even built her own calculator to determine if she can afford to purchase a home based on its price and how much money she’s stashed away.
Here’s a look at Soledad’s recommended saving goals based on several different home prices and a 20% down payment. (Because furniture costs vary from person to person, it's marked as $0, but you can tack that cost onto the total amount needed.)
4. Put your money in the right places
Soledad lets the magic of compound interest help grow the money she sets aside in her high-yield savings account. But she isn’t putting all her money in one place.
Soledad and her husband knew they had several years before making a home purchase, so they were comfortable not having all their money liquid. If you need quick access to your savings account funds, however, liquidity and easy withdrawal are key.
Once Soledad amassed $10,000 in her high-yield savings account, she put some money into the stock market through a taxable brokerage account and contributed a total of $30,000 by adding to it monthly. While investing in the stock market is a riskier tactic, it can offer better returns in the long run. The last time she checked, she already made a $4,000 return on her investment.
They also took advantage of Series I bonds, which currently earn interest at a rate near or above some of the best HYSAs. When you buy a Series I bond, your rate of return is locked for six months. After that period, rates are recalibrated biannually to pace with inflation.
I bonds are a good option if you don’t plan to use the funds immediately: You won’t be able to touch the money for the first year, and if you cash out your I bond before five years, you’ll lose three months of earned interest.
Though you don’t have to divvy up your savings across multiple accounts, it can be a good way to take advantage of higher annual percentage yields and capitalize on bigger returns on investments. Just always consider your timeline. If you plan to use your funds within a year or so, you shouldn’t tie your money up in a certificate of deposit, savings bond or the stock market.
5. Be prepared for bumps in the road
One of the main benefits of a more flexible budgeting strategy is being prepared. Medical emergencies, job losses and other life changes might throw off your timeline a bit, but they don’t have to derail your plans entirely.
When Soledad moved to California, she rented a house from her mom, paying $1,400 in monthly rent. That left her with around $1,000 in extra cash flow each month to dedicate toward savings goals.
When she moved to a new apartment, her rent more than tripled to $4,800 a month. Having an emergency fund meant Soledad didn’t have to dip into her down payment savings to afford the higher rent. But it meant she had to pause her contributions toward buying a home because she needed the money to pay rent.
"I knew we weren’t going to go into debt, but I didn’t know if we’re going to be saving for a house," Soledad said.
At that point, Soledad readjusted her budget and realized that she and her husband would need to focus on growing their income as much as possible.
6. Grow your income
Saving for any major expense — especially a home purchase — can take years. And that’s OK. But if you’re looking to speed up that process, finding ways to boost your earnings will have a bigger impact than simply cutting back on your expenses.
"What really worked for us was increasing our income, while making sure we were still enjoying our life so it felt sustainable," Soledad said.
Soledad's husband got a new job at a publicly traded company, where he was offered Restricted Stock Units, or RSUs — essentially shares of a company’s stock offered as a form of compensation to employees.
The couple made a commitment: When Soledad's husband received an RSU, they would vest it, sell it and put the funds into their down payment fund (after making sure their emergency fund was fully funded).
"That’s how we started to get a lot more money," Soledad said.
Not all RSUs can be vested immediately. In some cases, you have to wait several years before vesting.
There are other ways to increase your income. Consider pursuing a well-paid and low-stress side hustle that makes sense for your lifestyle, like driving for a ride-share app or walking dogs.
How to make homeownership fit with your personal goals
When Soledad was first introduced to the world of personal finance, she found a lot of advice came with shame and stigma.
"It made me feel like I could never leave the house or do anything so long as I had any debt," she said.
But Soledad eventually developed a more compassionate and considerate approach to saving and budgeting. Her financial coaching and education platform Wealth Para Todos is dedicated to removing barriers to financial security for marginalized communities while teaching her clients about self-care and building wealth.
Her philosophy — that you can take control of your finances while living your best life — applies to homeownership. Saving for a down payment (and all the costs associated with buying a home) doesn't have to break you. Cutting out unnecessary expenses doesn't mean removing all things from your life that bring you satisfaction. Instead of viewing saving and budgeting as a way to restrict yourself, Soledad sees it as a way of better understanding your money values.
"Of course you’re going to spend money, you’re enjoying life that way," Soledad said.
When saving for a down payment, think about your short- and long-term financial goals and priorities. Then see how homeownership might fit into those goals. Ask yourself: What can you afford while meeting your savings, retirement and personal goals?
Soledad is still working toward purchasing a house, but she isn’t in a rush. She doesn’t want to give up her life for homeownership, nor does she want to end up in a home she can’t afford, which would make her give up even more.
"I’m 37 and don’t own a property, but I will," said Soledad. "I also know that with the skills I’m developing, I’m going to eventually own multiple properties."
