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Millennials are in an interesting position. According to Forbes, they're making less than their parents did at the same age, adjusting for inflation, but they're the largest demographic of homebuyers. While more than one-third are relying on gifts or loans from relatives, there are other ways of saving for a down payment.

Conventional wisdom says it's best to make a 20 percent down payment when you buy your home. While this can help you lock in better interest rates and lower your monthly payment, you need to consider your individual financial situation and needs.

Go Under Budget

Home prices vary wildly depending on where you live, but you can expect to pay $150,000 to $250,000 on a starter home, typically a one- or two-bedroom. However, because millennials often rent longer, when they do purchase a home, they are opting to forgo the starter in favor of homes that cost $300,000 and above, according to CNBC. However, just because you can stretch your budget doesn't mean you should.

Even if you're preapproved for a specific loan amount, you may find that a lower home price gives you breathing room month to month. For long-term homeownership success, consider not only your down payment, but your monthly payments, property taxes, homeowners insurance, and closing costs — which can amount to 2–5 percent of the purchase price of your home. Smaller down payments may require you to get private mortgage insurance (PMI), which would increase your total monthly mortgage payments.

Going under budget gives you flexibility for home repairs or other financial emergencies. Many experts recommend saving between 1 and 3 percent of your home's value each year for routine maintenance.

Time It Right

The homebuying process can take time— if possible, begin to prepare months in advance from when you want to move in. If you know you're going to apply for a mortgage within the next few months, forgo opening new lines of credit, whether via a credit card or loan. This can negatively impact your credit score, which can increase interest rates and, ultimately, how much you'll need to spend.

If you're renting a house or apartment, try to negotiate a month-to-month lease or find an apartment that allows for a shorter lease term. That way, when the time comes to pull the trigger on buying a home, you can do so without the stress of rent and mortgage payments. Some millennials even opt to stay in their parents' houses to save on rent.

Generate Additional Income

Anything worthwhile doesn't come without hard work. As such, many millennials with their heart set on owning a home are taking on additional part-time jobs or forgoing vacations to save up for their dream home. However, there's one income source you want to avoid touching: retirement funds. If you're going to tap into this money, carefully consider the risks.

Research Mortgage Options

There's no one-size-fits-all mortgage and your income, location, and more can dictate your options. Talk to a professional mortgage loan officer, who can explain the home financing process and lay out the loan options that make the most sense for your situation.

Depending on where you're buying a home, your state may offer special programs for first-time homebuyers, or you may qualify for a Federal Housing Administration mortgage based on your income. Other options, like combination mortgages and VA mortgages, can eliminate the need for PMI. However, in the case of combination mortgages, you'll need a bigger down payment and VA mortgages are available only to veterans, service members, and eligible surviving spouses.

Before diving into the exciting journey to homeownership, use a mortgage calculator to see how much house fits your lifestyle and then consider any other expenses and financial buffers you may need now and in the future.

This information and recommendations contained herein is compiled from sources deemed reliable, but is not represented to be accurate or complete. In providing this information, neither KeyBank nor its affiliates are acting as your agent or is offering any tax, accounting, or legal advice.

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