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Of all the terrifying challenges that define life, saving up for a down payment on a home is way up there—somewhere between learning to ride a two-wheeler and surviving open heart surgery. Maybe closer to the surgery. But, hey, millions of people buy homes each year—you just need to save. The general goal is to plunk down 20% of the value of your dream home. And you need to figure out how to do so without giving up the simple pleasures of life, like making car payments, paying rent, or eating semi-regular meals.
And depending on how much you bank each paycheck, that can be easier said than done.
The enterprising data team at realtor.com® is here to help. We figured out how long it will take buyers in 12 professions, from cashiers to CEOs, to save up for a down payment, whether they’re bringing in $21,000 a year or $250,000-plus (we got average salaries from the Bureau of Labor Statistics). We also looked at how long that would take if they’re socking away 10% or 20% of their income each year. And we even provided some saving tips for different professions and income levels. Because we care.
We made a few big assumptions along the way. The first is that buyers will drop $275,000 on a home, which is the median price in the United States, according to realtor.com data. Reality check: Prices vary quite a lot depending on where folks are buying, what type of home is being purchased—and who’s doing the buying. A seven-bedroom mansion with a rooftop deck in the heart of San Francisco is going to cost quite a bit more than a three-bedroom abode in Detroit that needs serious TLC. Got it?
We also assumed our buyers will ante up the full recommended 20% down payment, totaling a hefty $55,000 on our theoretical $275,000 home. Sure, you can put down less, but you’ll have private mortgage insurance (PMI) payments tacked onto your bill every month.
Finally, we assumed the buyers are doing this on just one income, without help from a spouse, parent, Powerball windfall, shady Internet phishing schemes, or a fairy godmother.
Ready? You can do this, people! The best advice we received for those struggling to stash some cash is to automate a deduction from their paychecks so that a certain percentage goes directly into a separate savings account. This makes it harder to blow your loot on weekends in Vegas or rare commemorative “Golden Girls” collectors plates.
“Every time you get a salary raise, a tax refund, a bonus, a gift from family, save it,” says certified financial planner Jenna Rogers of Mission Wealth in Santa Barbara, CA. “Set it aside in a savings account designated as a home down-payment account.”
So, here’s how long it will take to reach a savings goal of $55,000, based on the earnings of different professions. Read on, and prepare to question your life choices.
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The Prosperous Pros: Chief executives, lawyers, and app developersLet’s be realistic: Most folks in this high-earning category, which includes members of the lucky 1%, are not buying $275,000 homes—unless they’re unusually frugal, stressed about insanely large student loans (med school, MBA programs, and law school aren’t cheap), or have a dozen or so little ones they need to put through college. They’re more likely to be purchasing much pricier homes that require heftier down payments.
But just because these high rollers are making bank doesn’t mean they should go crazy when it comes to buying a home, housing experts urge. Buyers should still make sure their home payments are no more than 30% of their take-home pay—even if their take-home pay is huge. That way, they’re saving enough for retirement or other financial goals.
“Everyone always says, ‘If I only had more money, my problems would be solved.’ But generally speaking, if you had more money, you’d spend more money,” says Kimmie Greene, a consumer finance expert at Mint, a personal finance app. Instead, “set your savings goals and the amount of time before you buy a house.” And stick to it!
Big earners may want to consider buying an investment property they can rent out, she says—preferably in a pricier neighborhood, where they can charge more in monthly fees. Besides offering a new stream of income, it can also lower their taxable income. That’s because expenses, mortgage interest, and maintenance of these rental properties can usually be deducted on their taxes each year.
Surprisingly, although tech is so hot these days, app developers making six-figure salaries may have a harder time than the other high-income professions when it comes to pulling together a down payment.
That’s because they’re likely to live in more expensive tech hubs, like Silicon Valley’s San Jose, CA, and San Francisco. The median prices in these metros are $1,030,100 and $884,400, respectively. Even the lower-priced, smaller tech centers like Denver, Seattle, and Austin, TX, ain’t cheap, at a respective $509,000, $499,200, and $382,500.
They may need to get a second job or pick up a side hustle (executive Uber driver, maybe?), suggests Greg McBride, chief financial analyst at Bankrate.com. And they should deposit that extra cash directly into a dedicated savings account.
“With that kind of salary, homeownership is within reach,” McBride says. “But in many costly markets, you just may have to settle for a smaller home.”
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1. Surgeon: $252,919 average salary
Time to reach goal when saving 10% annually: 2.2 years
Time to reach goal when saving 20% annually: 1.1 years
2. Chief executive: $194,350 average salary
Time to reach goal when saving 10% annually: 2.8 years
Time to reach goal when saving 20% annually: 1.4 years
3. Lawyer: $139,880 average salary
Time to reach goal when saving 10% annually: 3.9 years
Time to reach goal when saving 20% annually: 2 years
4. App developer: $104,300 average salary
Time to reach goal when saving 10% annually: 5.3 years
Time to reach goal when saving 20% annually: 2.6 years
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Ah, the middle class. They may not be able to fly their private jets to their own tropical isles, but hopefully, they can fly coach to the Caribbean for the occasional, much-deserved vacay. Buying a home can be a bit tougher at these income levels. But fortunately, there are a wide variety of programs that can help—particularly for those who provide essential services.
Many cities and private employers want to ensure that public servants and health care workers can afford to live where they work, or it can be hard to recruit and retain them. So they offer various programs to health care professionals, police officers, teachers, and others to help out with down payments and closing costs.
Nurses working at large hospitals or medical facilities can often score thousands of extra dollars through down payment assistance programs, or even discounted properties and rentals from certain employers.
Many first responders, such as police officers and educators, are also eligible for similar programs made available through various government agencies.
And teachers who don’t currently own a home can qualify for a 50% discount in areas with high foreclosure rates, on properties that are owned by the U.S. Department of Housing and Urban Development. They must live in the home for three years, though, or they’ll have to pay that discount back.
You don’t need to be a public servant to receive down payment assistance. There are plenty of programs that are not profession-specific. And that means buyers working in many different fields could luck into hefty additions to their down payments just by asking their real estate agents or mortgage loan officers, and doing some research.
Flexible or unconventional work schedules in some of these professions can also be advantageous for picking up overtime, freelance work, or second jobs, says Sean Moss, director of operations at Down Payment Resource, which tracks and monitors payment-assistance programs across the country.
That extra money can be used to pay off old debts, such as big credit card or car bills. Once those are gone, it’s easier to qualify for a mortgage. So don’t blow it all at once!
“Break things down to the ‘Nice to have’ and ‘Need to have,'” Moss says. “Do you need to eat out every weekend? Can you come up with better [and cheaper] alternatives to date night? Do you need the latest iPhone when it comes out?” (Spoiler: You really don’t.)
Those planning to buy a home within the next few years should figure out how quickly home prices are rising in their communities and then adjust their savings schedules accordingly, says Elysia Stobbe, author of “How to Get Approved for the Best Mortgage Without Sticking a Fork in Your Eye.”
Those who’d rather buy sooner should consider using a smaller down payment, while keeping enough in reserve to buy out their PMI at closing. This way, they’re not saddled with the monthly bills. Buying out the policy usually pays for itself within a few years, provided the new homeowners have good credit and put down at least 10%, Stobbe says.
5. Registered nurse: $72,180 average salary
Time to reach goal when saving 10% annually: 7.6 years
Time to reach goal when saving 20% annually: 3.8 years
6. Police officer: $62,790 average salary
Time to reach goal when saving 10% annually: 8.8 years
Time to reach goal when saving 20% annually: 4.4 years
7. Elementary school teacher: $59,020 average salary
Time to reach goal when saving 10% annually: 9.3 years
Time to reach goal when saving 20% annually: 4.7 years
8. Plumber: $56,030 average salary
Time to reach goal when saving 10% annually: 9.8 years
Time to reach goal when saving 20% annually: 4.9 years
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It’s much more difficult to save up on a smaller salary, and it just gets harder the lower you go. In many cases, saving up just 5% of one’s income—let alone 10%—for a $275,000 home just isn’t reality. But that doesn’t mean aspiring homeowners should give up.
More than 1 in 5 households making between $30,000 to $50,000 are stashing away more than 10% of their incomes each year, says Bankrate.com’s McBride.
Folks should consider lower-priced homes, such as smaller houses, townhouses, and condos, in cheaper parts of the country—think the Midwest and the South. They should also cut corners wherever possible: clipping coupons, working the “freecycle” network, packing a bag lunch, and saving their tax refunds.
To help save up for those homes, they’ll probably want to move in with family who won’t charge them market-rate rents (or perhaps anything at all), or rent places with enough roommates to make the price viable. Just keep repeating to yourself: “It’s only temporary. There’s no place like home…”
They may also want to consider pooling their money with close friends or family members to buy a two- or three-unit property, says financial planner Rogers.
The properties may cost more, but buyers “end up being able to save for the down payment a lot quicker,” she says. “And they’re splitting the mortgage.”
9. Postal carrier: $50,610 average salary
Time to reach goal when saving 10% annually: 10.9 years
Time to reach goal when saving 20% annually: 5.4 years
10. Customer service representative: $35,170 average salary
Time to reach goal when saving 10% annually: 15.6 years
Time to reach goal when saving 20% annually: 7.8 years
11. Hairdresser/cosmetologist: $25,590 average salary
Time to reach goal when saving 10% annually: 18.6 years
Time to reach goal when saving 20% annually: 9.3 years
12. Cashier: $21,710 average salary
Time to reach goal when saving 10% annually: 25.3 years
Time to reach goal when saving 20% annually: 12.7 years
The post Depending on Your Job, It Could Take 2 Years—or 25—to Save for a House appeared first on Real Estate News & Insights | realtor.com®.
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