How Much Do You Need to Save to Buy a Home?

Buying a home may be one of the largest financial commitments you’ll ever make. Most homebuyers purchase their homes with a mortgage loan, but they typically need to make a down payment to secure the mortgage—and saving up for a down payment can feel overwhelming. Almost a third (28%) of U.S. adults say the top challenge when buying a home is the inability to afford a down payment, according to U.S. Mortgage Insurers data.

Nevertheless, in a recent customer survey, 71% of Growth Savings customers said saving for a home is a worthy savings goal.

Below, we provide five easy steps for positioning home ownership as a realistic goal that you can start working towards today.

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Historically, would-be homeowners were advised to save 20% of a home’s purchase price for a down payment because a down payment less than 20% typically required private mortgage insurance (PMI). But that isn’t always necessary or realistic for every buyer.

While a 20% down payment eliminates PMI and often secures better interest rates, numerous loan programs accept much smaller down payments. Some conventional mortgage loans require as little as 3% down for first-time buyers, and government-backed loans such as those available through the Federal Housing Administration (FHA), Veterans Administration (VA), or U.S. Department of Agriculture (USDA) offer low or zero-down options for those who qualify.

Your credit score, debt-to-income ratio, and chosen loan type will influence the minimum down payment required. Early in your planning process, research different loan programs to understand the options you qualify for and the different down payment requirements.

Before calculating your down payment savings goal, establish a realistic home price range.

It’s a good idea to get pre-approved for a mortgage to understand how much lenders are willing to loan you based on your income, credit score, and existing debts. However, remember that pre-approval amounts represent the maximum you could borrow, not necessarily what you should spend.

A general guideline is the 28/36 rule, which means your total monthly housing costs shouldn’t exceed 28% of your gross monthly income, and your total monthly debt payments shouldn’t exceed 36%.

Remember to include property taxes, homeowner’s insurance, homeowner’s association fees, and potential PMI when calculating total housing costs. As you determine the spending range you’re comfortable with, consider your lifestyle, future financial goals, and desire for financial flexibility.

Once you’ve established your target home price range, it’s easy to calculate potential down payment amounts.

For a $300,000 home, a 20% down payment would be $60,000, while a 5% down payment would be $15,000. Create calculations for different scenarios within your price range and various down payment percentages to see how these choices affect your savings timeline and monthly mortgage payments.

Remember that larger down payments reduce your loan amount and monthly payments, but they also tie up more cash that could be used for other financial goals. For example, if making a larger down payment means you would be left without an emergency fund, that tradeoff may not be worth it to you.

Your savings goal for a new home should extend beyond just the down payment. Closing costs typically range from 2% to 5% of the home’s purchase price and cover expenses like appraisals, inspections, title insurance, and lender fees. You’ll also need funds for moving expenses, any necessary home improvements or repairs, and potentially new furniture or appliances.

Keep in mind that homeownership brings unexpected expenses, such as for home maintenance and repairs. So it’s wise to maintain an emergency fund separate from your down payment savings to provide you with financial security.

After you’ve determined your target down payment amount, create a realistic timeline for reaching your goal.

To determine the amount you’ll need to save each month, divide your total savings target by the number of months until you want to buy your home. Consider opening a dedicated high-yield savings account for your down payment fund to earn interest while keeping funds easily accessible.

Look for opportunities to accelerate your savings through side income, tax refunds, bonuses, or temporary spending reductions. Regularly reassess your savings goal as your financial situation changes or as home prices in your area fluctuate. By being flexible in your timeline or target home price, you can help ensure you don’t rush into homeownership before you’re financially prepared.

Take time to understand your options, calculate realistic targets, and create a systematic savings approach, so you can confidently work toward homeownership while maintaining overall financial health.

Disclaimer: This article is for general information and education only. It should not be considered financial or tax advice.