How Much Should I Save for a Mortgage Loan Down Payment?

Saving money can be tough when things just keep getting more expensive. Gas prices are on the rise, as is the cost of food and health care.

Even so, there are major milestones in every person’s life that require a sizable savings account; our Save Up series helps you understand and plan for how much money you’ll actually have to put away in order to reach your goals.

This installment covers how to save money to buy a house — read on to find out how much money you need to save up for a mortgage loan down payment.

How Much of a Down Payment Do I Need?

If you plan on applying for a mortgage to finance a home purchase, you will have to contribute a down payment (a portion of the total home cost up front). There’s no way around that. However, how much you choose to save for a home down payment will make a big difference in the long-term cost of financing.

In fact, though it is possible to finance a home with less than 20 percent down, it’s always recommended you save for at least a 20 percent down payment, for a number of reasons:

  • Less risk: Remember the mortgage bubble that burst in 2007? We got into that mess largely because homeowners financed much more home than they could realistically afford. A loan-to-value ratio of 80 percent or less is considered to be safer, allowing you to ride out economic downturns and prevent your mortgage from going underwater.
  • No PMI: Due to the increased risk associated with a smaller down payment, most lenders will charge private mortgage insurance (PMI) until you acheive 20 percent equity in your home — often a real challenge given today’s housing market. PMI is notoriously expensive and tough to cancel; you’re better off avoiding the fee completely by saving for a proper down payment.
  • Smaller payments: In addition to PMI, lenders will typically charge a higher interest rate on loans with less than 20 percent down to offset that risk further. However, saving a full 20 percent to put down on a home will not only keep your interest rate low; contributing more money also cuts down the total principal financed, translating to smaller monthly payments.

Saving for a Home According to Where You Live

Of course, a 20 percent down payment on a single family home in Toledo, Ohio, is certainly going to be a much different number than a 20 percent down payment on a condo in New York City.

To help you better plan for how to save money to buy a house, here is the median list price for homes in each state, according to, as well as how much you would have to save to put down 20 percent for a mortgage:

Click to enlarge
average listing prices by state

It can be tempting to cut corners while saving for a home, especially when it feels like there are so many factors working against you. However, having patience and following a well-thought out savings strategy to reach 20 percent down is the smartest, most cost-effective thing you can do on your way to becoming a homeowner. Remember, the sooner you start saving, the easier it will be to reach your goal, so create a plan today and stick to it.

  • Landon

    20 Percent down, that’s the way to go!

  • Samantha

    Was going to say how jealous I am of these places with average homes at under $200k… then, i realized that I’d have to live in Kansas. -___- No thanks.