Down Payments: How Much Should I Save Up?

Down payments are one of the most important topics to discuss when buying a home. How much should you save for a down payment on a house?

It’s a great question, and I think the best way to answer this is just by telling a story. One evening I was at a first-time home buyer housewarming party.  As I was walking around the room listening to the friendly conversation, I heard whispers from people saying things like, “how in the world did he do this? Where did he come up with that big down payment?” Others even said, “his parents must have helped him.”

My client who bought that house heard all those same whispers. He finally spoke up and said:

“People, look, I didn’t put this massive down payment to buy this house. I bought it with like $30k.”

Everyone in the room was pretty shocked. People were so surprised because everyone believes you need to put 20% down to purchase a home. They think that’s the only prudent option, even if delaying your purchase while you continue saving.

What if that wasn’t the case? What if you could do something right now? As confidence grows in the financial markets, lower down payment options become more available and attractive.

For example, in 2016, I had clients who said, “Rates are at a historic low, but I don’t like this PMI.” That made sense because PMI costs at that time were more expensive than they are today. They decided to wait a year and save up more money for that 20 percent down payment.

If you fast-forward just one year to 2017, property prices were up over 15 percent, and mortgage rates had shot up over 1.25%. The same thing occurred in 2020/2021 many times over.

So those very same people who were willing and able to purchase their dream home in 2016 & 2021 with a little PMI were totally priced out of the market just one year later.

I have lived this story countless times in the past 20 years.  Unfortunately, you cannot predict future home prices and can’t control mortgage rates.

I’ve had other clients that took that leap of faith. They said, “We’re going to put a little bit less down right now, the payment is going to be a little bit more expensive, but we’re saving money, and we know we can always restructure that loan and possibly refinance in the future.”

And sure enough, in 2020,  we began refinancing homes purchased in 2016/2017 as we experienced new historic lows in mortgage rates. Looking back, those clients were thankful they made that move when they did.  Through that refinance, they realized how much more equity they built and how much wealth they established.  They also dropped their payment substantially because of the lower rates and removal of the PMI.

The moral of this story is buying sooner is better. A mortgage unlocks many benefits for you as a homeowner, from tax deductions to building equity for the rest of your life. Talk to someone who can show you how to use a mortgage to create leverage toward building financial independence. You might not need to save up anything. You might be able to do it right now!