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The median US home costs $400,000+. A 20% down payment is $80,000. Here is a realistic plan to save for a house without stopping retirement investing or giving up your entire lifestyle.
Saving for a house down payment might be the most intimidating financial goal for Millennials and Gen Z. The median existing home price in the US is over $400,000 as of 2026, according to the National Association of Realtors. Even in affordable markets, you are looking at $250,000 to $350,000. At 20% down, that is $50,000 to $80,000 you need to save, plus closing costs.
No wonder so many young people think homeownership is out of reach. But the reality is more nuanced than “save $80,000 or forget about it.” You may not need 20% down. There are assistance programs for first-time buyers. And with the right system, you can save aggressively for a home without halting your retirement investing or emergency fund.
How much do you actually need?
The 20% down payment myth
You have probably heard that you need 20% down. But 20% is not a requirement. It is one option.
Here are the actual minimums:
- Conventional loan: 3% down minimum for first-time buyers (Fannie Mae HomeReady, Freddie Mac Home Possible). On a $350,000 home: $10,500.
- FHA loan: 3.5% down with a 580+ credit score. On $350,000: $12,250. FHA loans require mortgage insurance for the life of the loan.
- VA loan: 0% down for eligible veterans and active-duty military. No mortgage insurance.
- USDA loan: 0% down for homes in eligible rural and suburban areas. Income limits apply.
The tradeoff for less than 20% down: Private Mortgage Insurance (PMI), typically 0.5 to 1.5% of the loan amount per year. On a $340,000 loan (3% down on $350,000), PMI costs roughly $1,700 to $5,100/year ($142 to $425/month). PMI drops off automatically when you reach 20% equity.
The math that matters: Is it better to save 5 more years to hit 20% down, or buy now with 5% down and pay PMI? If home prices increase 3 to 5% per year while you save, the goalposts keep moving. The house that costs $350,000 today costs $405,000 in 5 years. You saved $70,000 for 20% down, but now 20% is $81,000. Meanwhile, the buyer who put 5% down 5 years ago has been building equity and their home is worth $55,000 more. There is no universal right answer, but waiting to save 20% is not always the smart financial move, especially in appreciating markets.
Beyond the down payment: closing costs
Do not forget closing costs: 2 to 5% of the home price. On a $350,000 home, that is $7,000 to $17,500. This covers appraisal, inspection, title insurance, attorney fees, origination fees, and prepaid taxes and insurance.
Your total savings target
For a $350,000 home with 5% down:
- Down payment: $17,500
- Closing costs (3%): $10,500
- Moving and immediate home expenses: $3,000 to $5,000
- Total needed: roughly $31,000 to $33,000
For a $400,000 home with 10% down:
- Down payment: $40,000
- Closing costs (3%): $12,000
- Moving/expenses: $4,000
- Total needed: roughly $56,000
For 20% down on $400,000:
- Down payment: $80,000
- Closing costs (3%): $12,000
- Moving/expenses: $4,000
- Total needed: roughly $96,000
Use our free Savings Goal Tracker to set your exact target and track your progress month by month.
Where to save your down payment money
Buying in 1 to 2 years: Keep your money in a high-yield savings account earning 4 to 5% APY with FDIC insurance. Do NOT invest this money in stocks. If the market drops 20% the year before you planned to buy, your down payment fund just lost $10,000 to $16,000.
Buying in 3 to 5 years: HYSA for the core amount, plus possibly a portion in I bonds or conservative investments if you have a high risk tolerance.
Buying in 5+ years: Focus on your Roth IRA and 401(k) and save for the house in a HYSA alongside your regular investing. Note: the Roth IRA has a useful provision — first-time homebuyers can withdraw up to $10,000 in earnings penalty-free (you owe income tax on earnings), plus contributions can be withdrawn anytime.
How to save $30,000 to $80,000: realistic timelines
| Monthly savings | 2 years | 3 years | 4 years | 5 years |
|---|---|---|---|---|
| $500 | $12,000 | $18,000 | $24,000 | $30,000 |
| $800 | $19,200 | $28,800 | $38,400 | $48,000 |
| $1,000 | $24,000 | $36,000 | $48,000 | $60,000 |
| $1,500 | $36,000 | $54,000 | $72,000 | $90,000 |
| $2,000 | $48,000 | $72,000 | $96,000 | $120,000 |
These numbers exclude HYSA interest (which adds roughly 4 to 5% per year on the growing balance).
Use the calculator below to find your exact monthly savings target:Down Payment Calculator
Enter your target home price and timeline to see exactly how much to save each month.
Strategies to accelerate your savings
Automate a dedicated “house fund.” Open a separate high-yield savings account labeled “House Fund.” Set up automatic transfers on payday. Keeping it separate reduces the temptation to dip into it and makes progress visible.
Save your raises and bonuses. Every raise, bonus, tax refund, and windfall goes to the house fund. A $3,000 annual bonus redirected to savings for 3 years is $9,000 toward your down payment without touching your regular budget.
Reduce your biggest expenses temporarily. Getting a roommate saves $500 to $1,000/month. In 2 years: $12,000 to $24,000. Driving a paid-off used car instead of a $450/month payment saves $450/month. In 2 years: $10,800. These are temporary sacrifices for long-term homeownership.
Add income with a side hustle. If you can earn $500 to $1,000/month and direct 100% of it to your house fund, you add $12,000 to $24,000 in 2 years. Combined with your regular savings, this can cut your timeline in half.
Use cash back rewards. Your regular spending generates cash back of $350 to $450/year from a good card. That is $700 to $900 over 2 years. Not a game-changer, but every bit helps.
Should you stop investing to save for a house?
Do NOT stop: Contributing to your 401(k) up to the employer match. That is an instant 50 to 100% return. No house savings timeline justifies skipping free money.
Consider pausing (temporarily): Additional retirement contributions beyond the match (extra 401(k), Roth IRA) if your home purchase timeline is 2 to 3 years and you need every dollar to reach your down payment goal.
After you buy the house, resume Roth IRA contributions immediately. The gap of 2 to 3 years in Roth contributions is not ideal but is a reasonable tradeoff for homeownership.
First-time homebuyer programs
FHA loans: 3.5% down, lower credit requirements, government-backed.
Conventional 97/HomeReady/Home Possible: 3% down conventional loans for first-time buyers.
State and local down payment assistance (DPA) programs: Many states, counties, and cities offer grants, forgivable loans, or matched savings programs providing $5,000 to $20,000+ toward your down payment. Check your state’s housing finance authority:
- California: CalHFA
- Texas: TDHCA
- Florida: Florida Housing
- New York: SONYMA
- Illinois: IHDA
- All other states: Use the HUD-approved housing counselor directory
IRA first-time homebuyer exception: Withdraw up to $10,000 from a Traditional IRA without the 10% early withdrawal penalty (you still owe income tax). From a Roth IRA, contributions can be withdrawn anytime tax and penalty-free, plus up to $10,000 in earnings penalty-free for a first home.
How much house can you afford?
A common guideline: your total monthly housing cost (mortgage, taxes, insurance, PMI, HOA) should not exceed 28% of your gross monthly income. Your total debt payments should not exceed 36%.
On a $75,000 salary ($6,250/month gross):
- 28% housing: $1,750/month maximum
- At current mortgage rates (roughly 6.5%), this supports roughly $300,000 to $330,000 with 10% down
On a dual income of $120,000 ($10,000/month gross):
- 28% housing: $2,800/month maximum
- Supports roughly $400,000 to $450,000 with 10% down
These are maximums, not targets. Buying below your maximum leaves more room for savings, investing, and living your life.
How mortgage rates affect what you can afford
| Rate | Monthly payment (P+I) | Total interest over 30 years |
|---|---|---|
| 5.0% | $1,691 | $293,000 |
| 6.0% | $1,889 | $365,000 |
| 6.5% | $1,991 | $397,000 |
| 7.0% | $2,095 | $429,000 |
| 7.5% | $2,201 | $477,000 |
Based on $315,000 loan (10% down on $350,000 home). Does not include taxes, insurance, or PMI.
How to get the best rate: Improve your credit score to 740+ (see our credit score guide). Shop at least 3 lenders — rates vary by 0.25 to 0.5% for the same borrower. Multiple mortgage inquiries within a 45-day window count as a single inquiry on your credit report.
Should you wait for rates to fall? Rates are impossible to predict. If you can afford the payment at today’s rate and plan to stay 7+ years, buying now and refinancing if rates drop later is a reasonable strategy.
Frequently asked questions
Is it better to rent or buy?
It depends on how long you will stay, local rent vs. buy ratios, and your financial situation. Generally, buying makes sense if you plan to stay at least 5 to 7 years to recoup closing costs. Use a rent vs. buy calculator with your local numbers.
Should I wait for home prices to drop?
Trying to time the housing market is like trying to time the stock market. Prices could drop, stay flat, or keep rising. Over the long term, home prices have generally increased 3 to 5% annually. If you can afford a home and plan to stay 7+ years, waiting for a dip is a risky bet.
Can I use my 401(k) for a down payment?
You can take a 401(k) loan (up to $50,000 or 50% of your vested balance) and repay yourself with interest. This avoids taxes and penalties but reduces your retirement investment growth while the loan is outstanding. It is better than a 401(k) hardship withdrawal (which triggers taxes plus 10% penalty), but worse than saving in a dedicated house fund.
What credit score do I need to buy a house?
FHA: 580+ for 3.5% down. Conventional: 620+ minimum, but 740+ gets the best interest rates. Spend 6 to 12 months improving your score before applying if you are below 740.
How much should I have in savings after buying?
After the down payment, closing costs, and moving expenses, you should still have 3 to 6 months of expenses in your emergency fund. Do not drain your emergency fund for the down payment.
The bottom line
Saving for a house is a marathon, not a sprint. Set a realistic target (you probably do not need 20% down), open a dedicated HYSA, automate your savings, and give yourself 2 to 4 years.
Do not stop investing for retirement entirely. Keep the 401(k) match at minimum. And do not buy more house than you can afford just because a lender says you qualify for a larger loan.
Build wealth while you save for a homeYour next step depends on your timeline:
- Buying in 1 to 3 years? Open a dedicated high-yield savings account labeled “House Fund” today. Automate a transfer on payday and do not touch it.
- Buying in 3 to 5 years? Keep your house fund in a HYSA and continue contributing to your Roth IRA in parallel. You have time to do both.
- Buying in 5+ years? Focus on maxing your retirement accounts first. Read our investing in your 20s guide to put your long-term savings to work.
