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Mortgages

Second jobs, moving in with family, investing: What we can learn from how millennials save for a down payment

This generation is working hard and making sacrifices to see their homeownership dreams come true.

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The Mint app has shut down as of Jan. 1, 2024. For alternatives, check out CNBC Select's ranking of the best budgeting apps.

Buying a home is undoubtedly one of the biggest expenses we'll make in our lifetime, and a big reason for that is the down payment. A down payment can require paying tens of thousands of dollars upfront (at least), which for many makes it an intimidating barrier to homeownership.

In fact, millennials are getting creative when it comes to saving up that small fortune. According to a 2023 Millennial Homebuyer Report by Clever Real Estate's Real Estate Witch, more than one-third of millennials work second jobs or a side hustle to earn more income. That's in addition to making other sacrifices for a down payment, such as setting aside a portion of each paycheck, cutting back on spending and moving in with family.

Below, CNBC Select outlines all the ways millennials report saving for a down payment and our takeaways. Plus, we give advice on where to stash your down payment cash and options for making a small down payment.

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How millennials are saving for a down payment — and what you can learn

Here's how millennials planning to purchase a home in the next year are gearing up to afford a down payment:

  • 50% report saving a portion of each paycheck
  • 45%...cutting back on non-essential spending
  • 38%...finding an additional source of income
  • 32%...finding a higher-earning job
  • 24%...moving in with family
  • 21%...investing
  • 13%...not paying other bills/going into debt

Saving and sacrificing can pay off

Automating a portion of every paycheck is a smart way to turn saving money into a consistent habit; you become used to living off of an amount of money that already accounts for setting money aside. Budgeting apps such as Mint or You Need a Budget (YNAB) can help you get a handle on your overall cash flow and how much you should (or can) save every paycheck.

Being frugal with your spending while taking on a second job (or hustling for a higher-paying one) will net you more money but at the risk of possible burnout. By the same token, moving in with your family will save you a bundle on rent — but at the potential cost of your independence and comfort. Like so much else with personal finance, putting together enough money for a down payment is largely a matter of how much you're willing and able to dedicate toward the goal.

Investing your down payment savings and neglecting your bills can backfire

Growing your down payment savings by investing may seem like a good idea since annual returns can be much higher than you would earn in a bank account. But those returns aren't guaranteed, especially since the average amount of time Americans spend saving for a 20% down payment (less than five years) makes those investments vulnerable to market volatility. Soon-to-be homeowners should avoid investing their down payment money unless homeownership is a far-off goal in the distant future.

Another mistake is saving up for a down payment at the expense of forgoing paying your bills. This is especially damaging when that debt has high interest (i.e. credit card debt) and balloons quickly. Not to mention, missing bill payments will tank your credit score — a number essential to securing a good mortgage.

Where to stash your cash for a future down payment

Money earmarked for a big investment such as a house is best kept in an accessible savings account offering above-average interest and protection through FDIC insurance.

Now is actually the perfect time to save for a down payment. Thanks to the Federal Reserve's rate hikes, savings accounts earn much more now compared to the last couple of years. At the time of writing, some high-yield savings accounts offer an APY of 4% and higher. That's over 12 times the national average. With a high-yield account, you can continue adding cash to bolster your savings.

LendingClub High-Yield Savings

LendingClub Bank, N.A., Member FDIC
  • Annual Percentage Yield (APY)

    5.00%

  • Minimum balance

    No minimum balance requirement after $100.00 to open the account

  • Monthly fee

    None

  • Maximum transactions

    None

  • Excessive transactions fee

    None

  • Overdraft fees

    N/A

  • Offer checking account?

    Yes

  • Offer ATM card?

    Yes

Terms apply.

UFB Secure Savings

UFB Secure Savings is offered by Axos Bank, a Member FDIC.
  • Annual Percentage Yield (APY)

    Earn up to 5.25% APY

  • Minimum balance

    None

  • Monthly fee

    None

  • Maximum transactions

    No max number of transactions; max transfer amounts may apply

  • Excessive transactions fee

    None

  • Overdraft fee

    Overdraft fees may be charged, according to the terms, but a specific amount is not specified; overdraft protection service available

  • Offer checking account?

    Yes

  • Offer ATM card?

    Yes

  • Terms apply.

Bask Interest Savings Account

Bask Bank and BankDirect are divisions of Texas Capital Bank, Member FDIC.
  • Annual Percentage Yield (APY)

    5.10% APY1

  • Minimum balance

    None

  • Monthly fee

    None

  • Maximum transactions

    Up to 6 free withdrawals or transfers per statement cycle

  • Excessive transactions fee

    None

  • Overdraft fee

    None

  • Offer checking account?

    No

  • Offer ATM card?

    No

Terms apply.

1Annual Percentage Yields (APY) and Interest Rates shown are offered on accounts accepted by Bask Bank and effective per the dates shown above, unless otherwise noted. Annual Percentage Yield is variable and subject to change at any time. No minimum balance requirement and no monthly service charge. Must fund within 15 business days of account opening.

Keep in mind that the APY on a savings account is variable, meaning it can change at any moment. Those who have a significant sum already saved and are looking to grow it can lock in today's higher rates with a CD. For example, Ally Bank currently offers a High Yield CD with a fixed 4.25% APY on term lengths of 12 months, 18 months, three years or five years. Just be sure you don't need the cash before your CD term is up, otherwise you'll pay a penalty fee for withdrawing your funds early.

Since interest rates fluctuate often these days, budding homeowners may want to also consider an alternative type of CD known as a bump-up CD. Normally, CD savers would be locked into a fixed interest rate, but a bump-up CD allows them to ask the bank for a higher rate if the bank ends up offering one during the saver's term (which is likely to happen if the Fed keeps raising rates). Step-up CDs work in a similar way, the only caveat being that the bank automatically opts the account holder into the higher rate.

Options for making a small down payment

Though a 20% down payment has long been a rule of thumb, you don't have to save that much. Luckily, if you need to make a small down payment, you have options. In fact, some mortgage lenders actually allow down payments as low as 3%.

For example, the DreaMaker℠ loan from Chase Bank lets homebuyers put down just 3% of the home's price, as does the HomeReady loan from Ally Bank. Making a 3% down payment for a home that costs $600,000 means you'd need to pay $18,000; a 20% down payment for the same house, on the other hand, would run you $120,000. Just keep in mind that putting down less than 20% often comes with additional monthly payments in the form of private mortgage insurance or a mortgage insurance premium.

Chase Bank

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans

    Conventional loans, FHA loans, VA loans, DreaMaker℠ loans and Jumbo loans

  • Terms

    10 – 30 years

  • Credit needed

    620

  • Minimum down payment

    3% if moving forward with a DreaMaker℠ loan

  • Terms apply.

  • Offers first-time homebuyer assistance?

    Yes — click here for details

Ally Home

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans

    Conventional loans, HomeReady loan and Jumbo loans

  • Terms

    15 – 30 years

  • Credit needed

    620

  • Minimum down payment

    3% if moving forward with a HomeReady loan

Terms apply.

Bottom line

Millennials are making moves — and sacrifices — to ensure their homeownership dreams actually come true. Whether or not you plan on buying a house in the near future, it's never too early to start saving for a down payment. Take advantage while rates are high and open a high-yield savings account or CD. And if you're eager to buy a house but don't yet have enough saved to put down 20%, look into mortgage lenders that allow small down payments.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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