How Much Should You Save to Buy a House?

There are a few defining moments in our lives. It may be the moment you land your dream job or maybe it’s more personal — like crossing the finish line on a 5K you’ve been training for. And for some, it’s the realization that buying that first home is within reach, both financially and emotionally. It’s a big step, and it’s one that’s built into the American dream. And if you’re left wondering how much money you should save to buy a house, you’re not alone. These costs can add up quickly.

After you’ve made the big decision to start shopping for a home, you might be surprised to find that coming up with the cash down payment is only one of several financial hurdles you’ll need to clear. Exactly how much you should save for a house depends on a number of factors, like the value of the home you’re targeting and the amount of money you intend on pushing into your down payment.


How Much to Save for a Down Payment

You may find as you start shopping for financing that many mortgage companies recommend you put at least 20 percent down. This is done for a few important reasons, though the main one is that with 20 percent down, you’ll be able to avoid a monthly private mortgage insurance fee. But coming up with that kind of capital can be a real challenge. That’s why private funding groups and lending institutions offer a wide array of options, some which only require as little as 3 percent down. So, if you’re looking to put down 3 percent on a $280,000 home, you’ll need to come up with $8,400 in cash savings.

Before you start looking for a home, it’s key to get your financial details to a mortgage broker or lender so that they can provide you with a pre-approval letter. They’ll put together a limit on how much they’re willing to lend you and you’ll then have an idea of how much to save for a down payment, given that spending limit. The total amount of savings needed for a down payment depends on your budget.

How much do you have to put down on a house?

There really is no set amount that you need to put down on a house, but there are minimal down payment requirements that can shift depending the type of loan you’ll be taking out on your mortgage.

Mortgage Loan Type
Minimum Percent Required
FHA loan down payment
3.5 percent
VA loan down payment
0 percent — For former and active US service members
Conventional loan down payment without PMI
20 percent
Conventional loan down payment with PMI
5 percent - 10 percent

What is the average down payment on a house?

For many, saving 20 percent of a home’s value can seem unreachable, and it’s not unusual for most homebuyers to put far less than this amount down. Although it’s hard to specify exactly what a typical down payment on a house is, most homes are purchased with a conventional loan — around 5 percent of the total purchase price. Paying less than 20 percent down is the way most homes are purchased.

Additional Home Buying Costs

After you’ve got the details from a lender about your purchase limits, you’ll have a pretty good idea of what your monthly payment will look like. Try getting online and using a mortgage calculator to estimate these costs. Because you may face other expenses both at closing and after you take ownership of the home, you’ll likely need additional savings in place to cover all the expenses you’ll encounter after relocating.

Closing Costs

As you move closer to your move-in date, your lender will get you details on estimated closing costs. Closing costs can vary from one home purchase to the other because some of these expenses can be used as bargaining chips in a real estate transaction. Closing costs pay for fees charged by a myriad of parties when a piece of real estate changes hands. From prepaying real estate taxes to fees for running your credit report to PMI one-time charges when applicable, buyers should expect to pay anywhere from 2 to 5 percent of the total purchase price in closing costs.

Cash Savings

When saving up for a home, it’s key to have a reserve of cash savings — or an emergency fund — that isn’t used for the down payment or closing costs. It’s a good idea to have at least 3-6 months of living expenses in this cash reserve.

Emergency funds are really important to help prevent you from defaulting on your mortgage payments. Equally important, many mortgage lenders may require that you have cash savings on hand in addition to the down payment amount.

Learn More About How to Save for and Buy a Home

As you continue on your path towards homeownership and find that home of your dreams, you may find you’ve got questions about the process. Our first-time home-buyers guide is a great resource to help you navigate the uncharted territory encountered during your home purchase journey. After you’ve selected a home and are working on finalizing your purchase, reach out to your American Family Insurance agent. They’ll help you craft a policy that’s easy to understand and protects your home and everything you’ve worked so hard for.