Frequently asked questions
Do I really need 20% down?
No. 20% avoids private mortgage insurance (PMI) and gets you the best rates, but many programs allow less: conventional loans at 3–5%, FHA at 3.5%, VA and USDA at 0%. The trade-off is higher monthly payments and PMI costs. Calculate whether the PMI cost justifies buying sooner versus waiting to save 20%.
Should I put the minimum down and invest the rest?
It depends on the mortgage rate versus expected investment returns, and your risk tolerance. If your mortgage rate is 6.5% and you expect 8–10% returns, investing may win mathematically. But 20% down saves on PMI (0.5–1% annually) and gives you a lower payment. The guaranteed return of avoiding PMI and interest often makes 20% the safer choice.
Where should I keep my down payment savings?
A high-yield savings account or money market fund (currently 4–5% APY) is ideal for money you need within 1–3 years. Avoid stocks or bonds for short-term savings — a market drop right before you need the money could delay your purchase. CDs work if the term matches your timeline. Keep it liquid and safe.
Should I include closing costs in my savings goal?
Yes. Closing costs are typically 2–5% of the home price and are due at closing on top of the down payment. On a $400,000 home, budget an additional $8,000–$20,000. Some lenders offer credits or roll costs into the loan, but you'll get better terms paying upfront. Add 3% to your savings target for a realistic goal.
How can I reach my down payment goal faster?
Increase monthly contributions (automate transfers), reduce large expenses temporarily, redirect windfalls (tax refunds, bonuses) to savings, consider down payment assistance programs, look into gift funds from family (allowed by most loan programs), and explore employer housing benefits. Every extra $500/month cuts months off your timeline.
Does it make sense to withdraw from retirement for a down payment?
Generally no. Early retirement withdrawals face penalties (10%) plus income tax, and you lose decades of compounding. A Roth IRA allows withdrawal of contributions (not gains) penalty-free, and first-time buyers can withdraw up to $10,000 of gains. Treat this as a last resort and calculate the true long-term cost of the withdrawal.