Do You Need to Save 20% for a Down Payment on a Home?

by Gurpreet Singh 02/03/2019

Buying a home is a big financial endeavor that takes planning and saving. Aside from a down payment, hopeful homeowners will also need to save for closing costs and moving expenses.

When it comes to the down payment amount you’ll need to save, many of us have often heard 20%, the magic number. However, there are a number of different types of mortgages that have different down payment requirements.

To complicate matters, mortgages vary somewhat between lenders and can change over time, with the ebb and flow of the housing market.

So, the best way to approach the process of saving for a down payment is to think about your needs in a home, and reach out to lenders to start comparing rates.

However, there are a few constants when it comes to down payments that are worth considering when shopping for a mortgage.

In today’s post, we’re going to talk about some characteristics of down payments, discuss where the 20% number comes from, and give you some tips on finding the best mortgage for you.

Do I need 20% saved for a down payment?

With the median home prices in America sitting around $200,000 and many areas averaging much higher, it may seem like 20% is an unattainable savings goal.

The good news is that many Americans hoping to buy their first home have several options that don’t involve savings $40,000 or more.

So, where does that number come from?

Most mortgage lenders will want to be sure that lending to would be a smart investment. In other words, they want to know that they’ll earn back the amount they lend you plus interest. They determine how risky it is to lend to you by considering a number of factors.

First and foremost is your credit score. Lenders want to see that you’re paying your bills on time and aren’t overwhelmed by debt. Second, they will ask you for verification of your income to determine how much you can realistically hope to pay each month. And, finally, they’ll consider the amount you’re putting down.

If you have less than 20% of the mortgage amount saved for your down payment, you’ll have to pay for private mortgage insurance (PMI). This is an extra fee must be paid in addition to your interest each month.

First-time buyers rarely put 20% or more down

Thanks to FHA loans guaranteed by the federal government, as well as other loan assistance programs like USDA loans and mortgages insured by the Department of Veterans Affairs, buying a home is usually within reach even if you don’t have several thousands saved.

On average, first-time buyers put closer to 6% down on their mortgage. However, they will have to pay PMI until they’ve paid off 20% of their home.


So, if you’re hoping to buy a home in the near future, saving should be a priority. But, don’t worry too much if you don’t think you can save the full 20% in advance.

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Gurpreet Singh

Gurpreet Singh, your number one source for Silver Spring Real Estate, and surrounding towns.