💰 Down Payment Savings Calculator

It depends on your loan type and goals:

Minimum down payments by loan type:

• FHA: 3.5% minimum (credit score 580+)
• Conventional: 3-5% minimum (5% more common)
• VA: 0% for qualifying veterans
• USDA: 0% for rural properties and income-qualified buyers

On a $400,000 home:

• 3.5% FHA = $14,000
• 5% Conventional = $20,000
• 10% = $40,000
• 20% = $80,000

Why save 20%?

• Avoid PMI ($100-300/month savings)
• Lower interest rate (0.25-0.5% better)
• Lower monthly payment
• Stronger negotiating position with sellers
• More equity from day one

Reality check: Most first-time buyers put down 6-12%. Don't wait years for 20% if prices rising faster than you can save.

Best options for down payment savings:

1. High-Yield Savings Account (HYSA) - BEST CHOICE

• Current rates: 4-5% APY
• FDIC insured (safe)
• Easy access when ready to buy
• No risk of losing money
• Best banks: Marcus, Ally, American Express, CIT Bank

Example: Saving $60K over 2 years

• HYSA at 4.5%: Earn $2,700 interest
• Regular savings at 0.5%: Earn $300 interest
• Checking at 0%: Earn $0

2. Money Market Account

• Similar to HYSA, 4-5% APY
• May have check-writing ability
• FDIC insured

3. Short-term CDs (if timeline flexible)

• 6-12 month CDs: 5-5.5% APY
• Guaranteed return
• Con: Money locked up, penalty for early withdrawal

AVOID for down payment:

• Stocks/mutual funds: Too risky short-term, could drop 20-30%
• Crypto: Way too volatile
• Real estate: Not liquid enough
• 401(k) loan: Risky if you lose job

Yes, but be very careful. Here are your options:

IRA Withdrawal (Best option if using retirement funds):

• First-time buyers: Withdraw up to $10,000 penalty-free
• Must be used for home purchase within 120 days
• Still pay income tax on withdrawal (but no 10% penalty)
• Can be combined with spouse's $10K = $20K total
• "First-time buyer" = haven't owned home in past 2 years

401(k) Loan (Risky but common):

• Borrow up to 50% of balance or $50K (whichever is less)
• Must repay within 5 years
• Interest paid goes back to your account
• Major risk: If you lose your job, entire balance due in 60 days or it becomes taxable distribution + 10% penalty

401(k) Hardship Withdrawal (Last resort):

• Pay income tax + 10% penalty
• On $40K withdrawal at 24% tax rate: $9,600 taxes + $4,000 penalty = $13,600 lost
• Plus lose decades of compound growth

Example comparison - $30K needed:

Option A: IRA withdrawal

• $10K from your IRA + $10K from spouse's IRA
• Pay ~$4,800 in taxes (24% bracket)
• Net: $20K toward down payment

Option B: 401(k) loan

• Borrow $30K, repay $550/mo for 5 years
• No taxes or penalties if you keep your job
• Risk: If fired, could owe $7,200 penalty + $7,200 taxes

Option C: Save longer

• Keep retirement accounts growing
• $30K growing at 8% for 30 years = $302,000

Recommendation: Only use retirement funds if you have no other option and are confident in job security.

Usually NO - don't wait for 20% if it takes years. Here's why:

Scenario: $400K home, saving $2,000/month

Option A: Buy with 5% down ($20K) = 10 months saving

• Down payment: $20,000
• Monthly payment: $2,850 (including PMI)
• Home appreciates 4%/year = $16K/year gain
• Build equity immediately

Option B: Wait 3 more years to save 20% ($80K)

• Take 40 months total to save $80K
• Home price now $450K (4% annual appreciation)
• Need $90K for 20% down!
• Lost 3 years of equity building
• Paid $72K in rent = $72K gone forever

The math: Option A wins by $138,000!

• Equity gained: $48K (3 years)
• Appreciation: $50K
• Rent saved: $72K
• PMI cost: ~$10K
• Net benefit: $160K - $22K = $138K

When you SHOULD wait for 20%:

• Market is clearly overheated/bubble
• Can save 20% within 12-18 months
• Home prices declining in your area
• Your income/credit will improve significantly soon
• Not sure you'll stay 5+ years

PMI isn't forever:

• Automatically removed at 78% loan-to-value
• Can request removal at 80% LTV
• Can refinance once you have 20% equity
• With appreciation, often removable in 2-4 years

Yes! Gift funds are commonly used and fully allowed.

Who can give gift funds:

• Parents, grandparents, siblings
• Aunts, uncles, cousins
• Fiancé/fiancée (if getting married)
• Domestic partner in some cases
• Employers (sometimes)

Who CANNOT give gifts (must be loans):

• Friends
• Real estate agents
• Sellers (some exceptions)
• Anyone with interest in the transaction

Gift rules by loan type:

FHA Loans:

• 100% of down payment can be gifted
• None of it needs to be your own money
• Very flexible for first-time buyers

Conventional Loans (Primary residence):

• Down payment under 20%: Must contribute 5% your own funds
• Down payment 20%+: 100% can be gifted

Example: $400K home, 10% down ($40K)

• You contribute: $2,000 (5% of $40K)
• Parents can gift: $38,000

VA Loans:

• 100% can be gifted (no down payment required anyway)
• Can use gifts for closing costs

Required documentation:

1. Gift Letter stating:
   • Dollar amount of gift
   • Relationship to buyer
   • Property address
   • Statement that it's a gift, not a loan
   • No repayment expected
2. Paper trail:
   • Bank statement showing donor has funds
   • Transfer documentation
   • Deposit into your account
   • Proof funds seasoned (30-60 days in your account)

Tax implications:

• Giver: Can gift up to $18,000/person/year tax-free (2024)
• Married parents can each gift $18K = $36K to you
• Plus $36K to your spouse = $72K total tax-free
• Above this, must file gift tax return (but rarely owe taxes)
• Receiver: No tax implications at all

Timeline depends on your target and monthly savings:

Aggressive Saving Example:

Income: $80K/year ($6,667/mo gross, ~$5,000 take-home)
Rent: $1,500
Other expenses: $2,000
Available to save: $1,500/month

To save $40K (10% on $400K home) at 4.5% APY:

• Time needed: 25 months (2 years, 1 month)
• Interest earned: $2,400

To save $80K (20% on $400K home):

• Time needed: 50 months (4 years, 2 months)
• Interest earned: $9,800

Ways to save faster:

1. Increase income (fastest method):

• Side hustle: +$500-2,000/month
• Ask for raise: +$200-500/month
• Job hop: +$500-1,000/month
• Overtime: +$300-800/month

2. Decrease expenses:

• Get roommate: Save $600-1,000/month
• Move in with parents: Save $1,500/month (if possible)
• Cut subscriptions: Save $100-300/month
• Pack lunch: Save $200/month
• Refinance car: Save $100-200/month

3. Windfalls:

• Tax refund: $2,000-5,000
• Work bonus: $1,000-10,000
• Inheritance/gifts: Variable
• Sell stuff: $500-2,000

Extreme example - move in with parents for 18 months:

• Save $1,500/mo (current) + $1,500/mo (rent saved) = $3,000/mo
• 18 months × $3,000 = $54,000
• Plus interest: ~$56,500
• Enough for 20% down on $280K or 10% down on $560K

Realistic timeline for most first-time buyers:

• Minimum down payment (3.5-5%): 1-2 years
• Comfortable down payment (10%): 2-3 years
• Ideal down payment (20%): 3-5 years

Pro tip: Use our calculator above to see your exact timeline based on your numbers!

They're separate costs - you need BOTH!

Down Payment:

• Your equity stake in the home
• 3-20% of purchase price
• Goes toward the home's value
• Reduces your loan amount
• You get this back (with appreciation) when you sell

Closing Costs:

• Fees to process the transaction
• 2-5% of purchase price
• Paid to various service providers
• Does NOT go toward home equity
• This money is gone forever (cost of buying)

Example: $400,000 home purchase

Down Payment (20%):

• Amount: $80,000
• Goes toward: Ownership in the home
• Reduces loan to: $320,000

Closing Costs (3%):

• Amount: $12,000
• Includes:
  • Loan origination: $3,200
  • Appraisal: $500
  • Title insurance: $2,000
  • Attorney fees: $1,000
  • Inspections: $600
  • Prepaid taxes/insurance: $3,000
  • Other fees: $1,700

Total cash needed at closing: $92,000

How to reduce closing costs:

1. Ask for seller concessions: Seller pays 3-6% of costs
2. Shop around: Compare lender fees, title companies, inspectors
3. Negotiate: Some fees are negotiable
4. Lender credits: Accept slightly higher rate for fee coverage
5. Close at month-end: Less prepaid interest

State programs:

• Many states offer closing cost assistance
• Typically $2,000-7,500 in grants
• Income limits apply
• Check your state housing authority

Bottom line: If buying a $400K home with 10% down, budget:

• Down payment: $40,000
• Closing costs: $12,000
• Emergency fund: $5,000-10,000
• Total saved: $57,000-62,000 minimum