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According to the U.S. Census Bureau, the median sales price of new homes in May 2020 was around $317,000. Even if you’re purchasing a home that falls well below that average, chances are it’s one of the most expensive things you’ll ever buy. With such a big expense, you might be wondering—how much do you need to save for a house?

The good news? You don’t have to save for the entire purchase price. But the amount you might need on hand to buy a home can be significant. Get some idea of how much money you might need to buy a house below.

How Much Should You Save for a House Down Payment?

It all depends on the price of the home you want to buy and what type of loan program you qualify for. Down payments are usually a percentage of the home cost.

You might have heard that you need 20% down to buy a home. That’s actually not entirely true. Although the Consumer Financial Protection Bureau makes a case for the benefits of 20% down, it also notes that this number doesn’t work for everyone.

So, where does the 20% figure come from? It’s part of the guidelines set by Fannie Mae and Freddie Mac, government sponsored, mortgage guarantee companies. You either have to pay 20% down or pay private mortgage insurance, because analysis indicates that loans without 20% down are riskier for the lenders.

Here’s a look at some common mortgage options and how much you might need to have for a down payment:

  • The CFPB notes that conventional loans with PMI can require 5 to 15% down on average. If the home price is $300,000, that’s $15,000 to $45,000.
  • Loans through the Federal Housing Administration require down payments of at least 3.5%. That’s $10,500 on a $300,000 home.
  • Some loan programs, such as those for rural borrowers through the USDA, or those who qualify for loans through the VA, don’t require a down payment at all.

Other Expenses to Save for

Down payments aren’t the only thing you need to save for when buying a home. Closing costs can be thousands of dollars, and you may need to foot the bill for inspections, home repairs or even fun things, like new furniture. To make the home-buying process less stressful, it’s a good idea to save more than you expect to need for closing costs.

How Long Will It Take to Save for a House?

Saving 20% of your income could catapult you into purchasing a home in the next one to three years, depending on your market. For example, if you’re earning $96,000 per year, that’s $19,200 saved after one year. It’s $38,400 after two years and $57,600 after three. Even if you need 20% down, these amounts are roughly enough to help you buy homes worth between $100,000 and $300,000 within three years.

How Much of Your Savings Should You Spend on a House?

It’s tempting to empty out your savings or cash in your 401(k) to buy your dream home. Even if the house is just your first step into home ownership and isn’t perfect, it’s tempting to do what it takes to get those keys.

But spending 100% of your savings leaves no safety net if something happens. What if something breaks in your new home or there’s a medical emergency? Having some savings on hand to cover these issues helps protect your home, because you’re more likely to be able to continue to pay the mortgage.

Planning to Purchase a Home

If you’re planning on buying a home in the future, it’s important to start saving today. Every little bit you can do to save for a home helps make it happen.

If you want to buy a home for around $300,000 and you can’t qualify for a loan program that requires no down payment, you’ll need at least $10,500 to $15,000. You’ll also need closing costs and other fees, which typically run between 2 and 5% of the purchase price. Assuming $10,000 in closing costs, you need $25,000 minimum to position yourself for home ownership.

A Short-Term Plan

If you’re looking to buy a home within the next year or two, you’d need to save $12,500 to $25,000 a year. Saving 20% of your income can help you save the bulk of that in one or two years if you make more than $50,000 annually. To do that, though, you’ll need to set an aggressive personal budget and be willing to cut out some extras, such as cable or eating out.

A Long-Term Plan

By starting your journey to home ownership as early as possible, you can stretch your plan to five years or more. If you save over the course of five years, that’s only $5,000 a year. That’s $416 a month or just under $100 a week. You really could save for a house this way simply by cutting out a few expensive coffees, pizza nights, dinners, etc.

Start Saving Today

How much should you save before you try to buy a home? It depends on so many factors that there’s not a one-size-fits-all answer. So, do your research early, make a plan and stick with it. And, as you get close to being ready to buy a home, don’t forget to shop around to find the best mortgage rates. Because those mortgage rates, along with your home price, determine how much you’ll pay for your home.

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  • Sandy cheeks

    This guy probably doesn’t even have a income

  • ScottSheldonLoans

    This is true.

  • Dan

    You need to start when you are young and expenses are low to get ahead. That is why you need to teach your children about the time-value of money early so they can make smart decisions in their 20s that will set them up for success when they start their family.

  • Hardworking Mom

    Having read the article and calculating a more realistic figure:
    Gross Income of $35K/year – After tax $26K (at 25% taxable)
    House Price $250K – 2.5% Closing costs $5,600; 3.5% Downpayment $8,700. you come down with $14,300 in about 2 years and 9 months saving 20% of your after tax income.

    so you need to save $5,250 per year, attack your entertainment expenses, vacations, restaurants, impulsive shopping – clothing (you dont really need those cute shoes or pretty shirt and pants, do you?), unplug all your appliances when you dont use them, that cuts your electric bill a lot. (by experience).

    Then after you buy your $250K home, sad news is that you need to pay your mortgage, taxes, PMI, Insurance, etc.. that will eat $19K a year of your after tax income. leaving you with about $7K to feed your family, pay for gasoline, utilities, etc..

    Good luck.. We are in the land of opportunities eh?

    • ScottSheldonLoans

      Buying a home is by far the largest financial decision of one’s life. Under this above scenario, the figures wouldn’t jive anyway despite the savings component, as there would be a debt to income ratio threshold exceeded. The goal of the article was to quantify a savings to make buying a home a reality. Everyone’s financial circumstances are different. Happy to give you some pointers. Let us know.

    • Realist

      I think you’re missing something obvious here—a person making 35k a year simply can’t afford a 250k house! They will either need to figure out how to earn more money or figure out how to live with less. Why do Americans feel entitled to expensive things that they can’t afford?

  • tyshiona

    Hey right lol yea!
    AMEN

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  • jr.

    Hahaha this is a great comment. I fully agree. It is nearly impossible to save that much, Maybe if you were committed to walking everyday to work instead of driving, not eating a lunch, and yes the dreaded college diet of Ramen Noodles. 20% saved is fine if you are making 100K a year, but if you are making 40K or less….forget the 20%

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  • john

    as heavyw8t duly notes – middle class americans rarely could afford what you’ve outlined in the article. Not at least until 5 years of savings, given the increase of nearly everything in daily life right now. Not everyone can meet criteria for USDA, VA or FHA loans either. Conventional are now requiring 20% down in many areas. This article really helps no one unless they actually make 100K a year in gross and don’t have high expenses already.

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  • heavyw8t

    I wish you would write more about the real world in blue collar America. Income of $96,000? House for $500,000? That’s rich people. Talk to the guy making due on $30,000 year while feeding 4 and sending 2 kids through school.

    • http://www.credit.com/ Credit.com Credit Experts

      Scott Sheldon replies: Saving 10 to 20% of your pretax income is deafinitely going to be challenging depending on what part of the country you are in. Chris the long-term effects of PMI are 100% important the majority of people however either choose to refinance out of PMI or can wait be appropriate time frames 24 months on conventional loans, and five years on FHA loans independent of the equity requirements. Agreed PMI over time can absolutely wane on household finances which is why PMI need to be handled appropriately making sure it can be affordable and scalable and a sense of when it can actually be removed based upon whatever region of the country you’re in.

    • ScottSheldonLoans

      The reality of it is that there is no way to speak to a person making several hundred thousand dollars per year and then put them automatically in the same boat as someone making $30,000 per year. The goal of the article is to take a person who is making good income and give them a trajectory of what it looks like to get into a home.

      • Bambina

        My mother can lol!

    • Independent

      My household brings in about 100k but saving 20k a year would be hard. Trust me, 100k isn’t rich.

  • Chris P.

    Wish you would have written more about PMI. Most people don’t understand it and it’s lifetime costs over entire length of the mortgage, not just until your equity hits a certain percentage.

    • tyshiona

      Yea I know amen
      AMEN! 🙂

    • ScottSheldonLoans

      I have found in my personal origination mortgage business that the majority of the people that take out loans with private mortgage insurance refinance them in three to five years. Although I do like this for a future blog post. Thank you for the heads up.

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