A 200,000 home can require 54,000 in savings. How to work it out and how to get there.
Key findings
- With an 80% mortgage and 14,000 of costs, a 200,000 home needs 54,000 saved.
- The payment, at 3% over 25 years, would be 758.74 a month: 27.1% of a 2,800 income.
- Saving 54,000 in 5 years takes 900 a month with no return, or 835.31 at 3%.
How much cash you really need
When you buy a home with a mortgage, lenders do not usually lend the full price, and you also have to pay taxes and buying costs, which are rarely financed. The cash you need saved is the sum of both.
A hypothetical example: a home costing 200,000 with a 160,000 mortgage (80% of the price) and 14,000 of taxes and costs. You need 54,000: a 40,000 down payment plus 14,000 of costs. Taxes and costs depend on your country and region, so check yours before doing the sums.
Check the payment too
With that mortgage at 3% over 25 years, the payment would be 758.74 a month. With a take-home income of 2,800 a month, that is 27.1%. It is better to know before you start saving: if the payment does not fit your budget, you may need to look at cheaper homes or wait until you earn more.
A plan to save the deposit
To put together 54,000 in 5 years, you need to set aside 900 a month if the money earns nothing. If it sits in an account or deposit paying 2% a year, 856.50 is enough; at 3%, 835.31. These are hypothetical figures: check what you would really earn.
For money you will use within a few years, the cautious choice is not to put it at risk. If you invest in shares and a fall comes just before you buy, you might have to delay the purchase.
Tips to get there sooner
- Automate your saving with a transfer on payday.
- Keep this money separate from your emergency fund: do not use the deposit for emergencies, or the other way round.
- Review your target price: every 10,000 off the price is 2,000 less down payment with an 80% mortgage, plus lower costs.
- Keep a cushion for afterwards: moving, furniture and repairs arrive just when you have spent your savings.
Work out your case with the cash needed to buy a home calculator, plan it with the savings goal calculator and check the payment in the mortgage calculator.