Saving for a house deposit (2024)

FAQs

Saving for a house deposit? ›

You should shoot for a down payment of at least 20%—that'll keep you from having to pay for private mortgage insurance (PMI). PMI is a yearly fee that runs about 1% of your loan balance, so avoiding it will save you big-time money. Plus, a bigger down payment means smaller monthly payments and less debt.

When buying a home, you'll generally need to put down a deposit that is equal to at least 5% of the value of the property. Ideally, you'll want to save as much as you can for a deposit because you won't have to borrow as much from a bank or lender. This means you'll pay back a smaller amount of interest.

First-time home buyers have long considered a down payment of 20% on a mortgage the standard amount. But this initial payment can sometimes be set as low as 5% for a conventional loan—and buyers always have the option of paying more than 20% of the purchase price.

FHA loan: 3.5 percent down payment

For a Federal Housing Administration (FHA) loan, the minimum down payment is 3.5 percent with a credit score of at least 580. If you have a credit score between 500 and 579, you can still get approved, but you'll need a 10 percent down payment.

In most real estate markets, the average good faith deposit is between 1% and 3% of the property's purchase price. It can be as high as 10% for highly competitive homes with multiple interested buyers.

How can I avoid a large down payment on my house? ›

Many first-time homebuyers mistakenly believe they must put 20 percent down to qualify for a mortgage. Fortunately, that's not the case. The typical down payment for a first-time homebuyer was 8 percent in 2023, according to the National Association of Realtors (NAR).

The good news is that if you earn $70,000, most estimates show that you can afford to spend around $2,100 a month on housing expenses so a home should be within reach.

To purchase a $200,000 house, you need a down payment of at least $40,000 (20% of the home price) to avoid PMI on a conventional mortgage. If you're a first-time home buyer, you could save a smaller down payment of $10,000–20,000 (5–10%). But remember, that will drive up your monthly payment with PMI fees.

Your decision should be based on what works best for your current situation and future plans. But if your budget allows for a larger down payment, it can potentially lead to lower monthly mortgage payments and less interest paid over the life of your loan, providing long-term financial benefits.

A good number to shoot for when saving for a house is 25% of the sale price to cover your down payment, closing costs and moving expenses. (This amount is separate from saving up 3–6 months of your typical living expenses in a fully-funded emergency fund—which I recommend you do first, before saving up for a home.)

For those planning to purchase a home within the next 3 years, Fidelity suggests holding down payment cash in checking, regular savings, or high-yield savings accounts—or in cash-like investments such as money market funds or certificates of deposit (CDs) that will mature before you anticipate needing the money.