Aspiring homeowners often ask how much money they need to buy their first home. While the answer varies depending on location, property type, and personal financial situation, it’s safe to say that having a substantial down payment can give you a better chance of securing a mortgage and scoring a lower interest rate.
So, how much do you need to save for your first home? Here’s a breakdown of the average home prices in some of the most popular regions in the US and Canada, along with the recommended down payment percentages and estimated savings amounts.
How Much Home Can You Afford?
Before you start house hunting, it’s important to determine how much home you can actually afford based on your income, debt-to-income ratio, credit score, and other factors. You can use online mortgage calculators to get an estimate, but talking to a mortgage lender or financial advisor is highly recommended.
Recommended Down Payment Percentages
While it’s possible to buy a home with as little as 3% down payment (for FHA loans) or zero down payment (for VA loans), it’s generally advisable to put down at least 20% to avoid private mortgage insurance (PMI) and reduce your monthly payments.
Here are the recommended down payment percentages based on the property type:
Conventional loans: 20% to 25%
FHA loans: 3.5%
VA loans: 0% to 5%
How Much You Need to Save
Assuming you want to buy a home in the following regions, here’s how much you need to save for a 20% down payment based on the median home prices as of March 2023:
Northeast (New York City metro area, Boston, Philadelphia): $80,000 to $200,000
Southeast (Miami, Atlanta, Charlotte): $40,000 to $100,000
Midwest (Chicago, Detroit, Minneapolis): $32,000 to $80,000
Southwest (Houston, Dallas, Phoenix): $40,000 to $100,000
West (Los Angeles, San Francisco, Seattle): $120,000 to $300,000
Canada (Toronto, Vancouver): CAD 120,000 to CAD 300,000
How to Save for Your First Home
Saving for a down payment can be daunting, especially if you’re dealing with other debts or expenses. Here are some tips to help you build your first home down payment fund faster:
Create a budget and track your spending
Cut back on unnecessary expenses (e.g., eating out, subscription services, shopping)
Consider a side hustle or part-time job to boost your income
Take advantage of employer-matched retirement savings plans
Look into down payment assistance programs or grants
Use a high-yield savings account or CD to earn interest on your savings
The Bottom Line
Saving for your first home requires patience, discipline, and smart financial decisions. While the exact amount you need to save depends on various factors, it’s always a good idea to aim for a 20% down payment to secure a better mortgage deal. By following the tips above and staying focused on your goal, you can turn your dream of homeownership into a reality.
