Should You Just Buy Now or Save Up More for a Down Payment? Here’s How to Decide (2024)

Brittany Anas

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• Your down payment options: Though the amount you need for a down payment depends on your loan and what type of property you’re buying, options usually start at 3 percent down. With an FHA-backed loan, for example, first-time homebuyers can put down just 3.5 percent. But in New York’s co-ops, though, you typically need at least 20 percent down. Jennifer Okhovat, a real estate agent with Compass in Los Angeles, has been working with first-time buyers who have been putting down just 3 percent, and she helps link them with programs that can assist with down payments and closing costs.
• Your local housing market: Are housing prices continuing to creep up? Cities on the West Coast are in a perennial housing boom, and prices will continue to grow, says Vivek Sah, director of the Lied Institute for Real Estate Studies at University of Nevada, Las Vegas. It’s recommended to buy as soon as you have the financial resources to do so, he says.

  But don’t just plan for a down payment and monthly income to cover your mortgage. Think about property taxes, insurance, maintenance costs, and any HOA dues.

  In other cities, Sah suggests following university-released local housing market reports to determine the strength of the market. Read between the lines at what’s driving economic growth, which in turn dictates the housing markets: Is it driven by more jobs? Higher wages? Are there simply more people moving into the area? Can the housing supply keep up?

• Private Mortgage Insurance: If you don’t have 20 percent saved up for a down payment, are you prepared to pay PMI?

  “The most common minimum down payment is 20 percent, as this is the threshold where you no longer have to pay Private Mortgage Insurance, essentially lowering your payments,” says Alex Lavrenov, agent with Warburg Realty in New York City.

  Still, now may be a good time to buy because housing inventory is becoming more bountiful across the country and interest rates are projected to increase, says Ralph DiBugnara, president of Home Qualified, a real estate resource site.

• Interest rates are projected to rise: “Interest rates are expected to rise and a 0.5 percent increase could cost you tens of thousands of dollars more over the life of the loan—if not more—depending on the amount financed,” says Christopher Totaro of Warburg Realty.

  Even in a buyer’s market, higher interest rates could translate to your monthly mortgage payment being higher, says Michelle Mumoli, CEO and Realtor at The Mumoli Group at Keller Williams City Life Jersey City in New Jersey.

• Breaking a lease may be worth it: Many first-time homebuyers try to wait until the lease on their current place is nearing the end of its term to purchase their first home, says Shelly Place, agent with Triplemint in New York City.
  “In reality, it can be quite difficult to line up a closing date perfectly with the end of a lease, so in most cases it’s not worth it to let a lease hold you back from putting in an offer on a home you love,” she says.

  Most leases can be broken with 30-to 60-day notice to the landlord along with a fee. The rate will vary from landlord to landlord, she says, so make sure you read your lease or consult your management company to find out exactly when and how you’ll be charged if you leave your lease early.

  “Most landlords I’ve come across charge the equivalent of one to two months’ rent for breaking the lease,” she says.

• Market growth could outpace your ability to save money: Say you want to go the traditional route and save 20 percent for your down payment. That’s admirable! But, the problem? Let’s say you’re eyeing starter homes that are $300,000. You figure it would take you a few more years to get to the $60,000 savings mark. But what happens if those homes increase to $400,000? The market could surpass your ability to save, making a 20 percent down payment further out of reach. All the while, you’re missing out on the opportunity to build equity, which could have made up for the PMI you were paying had you bought earlier.

• You amass a large down payment: “The larger the down payment, the lower the risk and the lower the monthly payments,” says Sah. Also, a larger down payment could allow you to go for a shorter-term loan (15 years vs. 30 years). This can help you pay off the loan earlier and have more equity in the home faster. But, know this: It’s hard to predict where the housing market will be in five years.
• Could you get a gift to speed up the process? We know. You already gave up avocado toast and cut out cable. While helpful, those small lifestyle changes aren’t doing a ton to get you to your savings goal. Maybe it’s time to ask for a little help via a gift fund?

  “Monetary gifts from family members can be used for your down payment or closing costs with proper documentation,” says Glenn Brunker, mortgage executive with Ally Home, the mortgage arm of online financial services company Ally Bank. (Did you know that 54 percent of urban buyers are using financial gifts from family members or friends to help cover the down payment?)

• You’re not building wealth: We’re not here to bash renting (we’re Apartment Therapy, after all.) There are plenty of great reasons to not buy a home at the moment. But, here’s some motivation to get to your savings goal (or figure out how to buy) quicker: Keep in mind that if you’re paying rent, you’re paying into someone else’s equity. “Why not pay into yours?” asks Mumoli.

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