Homebuyers May Need a Whopping 21 Years to Save Up a 20% Down Payment

by Maurie Backman | Updated July 19, 2021 - First published on Aug. 18, 2020

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Talk about a daunting task.

There's a reason a lot of people opt to rent rather than buy a home of their own: They can't afford the down payment.

Generally, buyers are advised to put down 20% of their home's purchase price -- that increases your chances of getting approved for a mortgage in the first place (though to be clear, it is possible to get a mortgage with less than 20% down). But that's not the only reason to make a 20% down payment. Doing so could also spare you from having to pay for private mortgage insurance, or PMI.

When you hear the word "insurance," you might think PMI is something that protects you. Actually, PMI protects your mortgage lender. You're considered a riskier borrower if you don't put down that 20%, so if you make a lower down payment, you pay your lender PMI each month. That can total 0.5% to 1% of your loan amount. For a $200,000 mortgage, you're looking at an extra $1,000 to $2,000 per year.

Putting down at least 20% of your home's purchase price can also help prevent becoming "underwater" on your mortgage -- which means your home value is lower than your remaining mortgage balance. But coming up with that 20% may be easier said than done.

In fact, based on the current national median income ($63,179) and national median home sale price for a single family home ($274,600), U.S. Mortgage Insurers estimate that it would take most people about 21 years to come up with a 20% down payment on a home, plus closing costs. (Of course, that's just one estimate, so it may not reflect the speed at which you're able to save for a home given your financial circumstances.)

If you're looking to buy a home, you probably don't want to wait 21 years. But you also don't want to get hit with PMI, so here are a few tips to save your down payment faster -- and get into your new home sooner.

1. Get a second source of income

If you're an average earner, chances are, a large chunk of your paycheck is already earmarked for existing expenses, and there may not be much room left for savings. Rather than slash expenses in your budget until you're miserable (which, frankly, isn't sustainable), consider getting a second job. That way, you'll be able to take all those earnings and put them toward your down payment.

2. Move in with your parents for a while

We know, we know -- you're an adult, and the last thing you want is to go from complete independence to living under your parents' roof. But if you're able to do so for a year or two, think about all the money you stand to save.

If your parents are willing to let you off the hook for rent, you might easily save $1,000 a month or more, depending on what your current landlord charges. Plus you might save on things like utilities and cable if you can piggyback on your parents' services. Of course, you don't want to take advantage of your parents, so if money is tight for them, you should offer to pay something. But if they're in good shape, they may agree to let you stay for free.

3. Trim expenses you won't miss

If you're looking to buy a home worth $274,600, a 20% down payment means you'll need to come up with roughly $55,000. You might think canceling your gym membership or cutting out a streaming service won't make a huge dent in light of that total. But coupled with the steps above, unloading expenses you don't care all that much about could make a difference.

If you rarely watch cable and can trim the, say, $80 a month from your budget, in two years' time, you'll have an extra $1,920 to put toward your home. To put it another way, don't assume that small steps won't help on the road to a large savings target.

That it could take some people 21 years to come up with a home down payment is, well, kind of depressing. But that doesn't mean it will take you that long to accumulate that down payment, and if you're willing to make sacrifices, you may find yourself signing a mortgage much sooner than you expect.

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