I was just curious how many first time buyers are coming up with the traditionally required 20% down on houses these days.
For a $500,000 house, 20% would be $100,000. Now, at $1000 of savings per month it would take 100 months or 8.3 years to save up that much. However, in 8.5 yrs at a nominal long term appreciation of 5% as *assumed* by most optimists, the price of the 500k home would’ve risen to 700k, now we need $140k down, to come up with the extra $40k we need to save for an additional 40 months or 3 yrs which would add yet another additional $15,000. Infact, you would NEVER catch up to the required 20% down.
If we assume 3% appreciation instead of 5%, it would still take 11yrs to save the required 20% downpayment.
Even at a monthly savings rate of $1500/month which is highly unlikely for most people given the average nationwide savings rate is -1.5% it would take 8 years to save 20% down on a 500k home.
Remember though that you earn interest on the savings in the same timeframe.
A lot of first time buyers get help from parents or grandparents in coming up with a down payment.
My anecdotal impression is that 20% downpayments are far from the norm right now. I’d be curious to see statistics on what the mean and median % down payments are.
We put 5% down on our first house. We had no help from family but we also did not sink ourselves into stupid debt on our wedding (unlike so many young couples these days who are spending 30k -40k that they don’t have).
We got lucky and made enough on our first house to put down 20% on the second (we also saved in the interim).
1) You have to invest your savings in something that will at least keep up with inflation. A 5% CD would do.
2) You need to increase your monthly savings at the rate of inflation. So if you start off saving $1000/month and inflation is at 4%, you should be saving $1040/month a year later. Hopefully, your job will give you pay raises that will outpace inflation.
If you do these two things, you should be able to accumulate your %20 downpayment in less than 8.3 years.
The number of first-time buyers putting 20% down has always been a small fraction, IMO. The exception woudl be those who receive support from parents to purchase their first home. Like PD, we purchased our first house with 5% down. Next house 4 years later 10% down. Third house 5 years after that for 20% down.
I’ve been a mortgage broker for many, many years. I have seen very little in regards to first time home buyers putting 20% down (+closing costs) recently. But this can be attributed to the high rate of appreciation. Most people opt for 100% financing believing their property will increase and they can refinance at 80% in less than two years. They use what would be a down payment (savings) to offset a mortgage payment they can’t afford. I don’t know the # of first time buyers that have done this. But it seems significant from those that have come past my radar.
We will see what happens as the market turns south. 100% financing guidelines will become much more stringent and many people will have to bring a down payment to get into their first property.
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