You likely have heard this advice at least once in your life from your parents or friends. The underlying reason is because if you put less than 20% down (meaning your down payment is less than 20% of the purchase price of your property), you will have to pay mortgage insurance premiums. With today's housing prices, if you don't have 20% saved up now, waiting until you meet that goal will likely take you a very long time and hurt you financially. To illustrate our point, we’d like you to meet our hypothetical couple: Andy & Anne.
Income: Together they make $85,000 per year
Rent: They are paying $2,000/month
Expenses: They together spend $2,200 per month on everything else (phone, utilities, food, nights out, etc.).
Property Value: They want to buy a $500,000 home
Current Savings: They have accumulated $25,000 in savings (5% down payment)
If you have good credit and your property qualifies for insurance, you pay for mortgage insurance in order to put down as little as 5%. Without mortgage insurance, your minimum down payment is 20%. You can read more about mortgage insurance and if you'd be eligible to apply for it in our Guide to Buying a Home.
It would take Andy & Anne 8 years to buy a home with 20% down!
Sounds unrealistic? Let's look at the main reasons why:
By waiting 8 years to save up a 20% down payment, Andy & Anne will lose almost $1M in potential financial gains over 25 years.
Buying your first home is not as hard as you'd think, it just takes a plan! Perch recommends the following steps to get you on your way:
To learn more about the homebuying process, you can read our Guide to Buying A Home.
For those who want a bit more detail on the math behind the conclusions above, some key assumptions* are:
*Note that you can adjust these assumptions within your home buying plan to customize your results.