A down payment is the largest goal most people ever save for, and the one where the target is most often wrong — not because people can't do arithmetic, but because "20% of the price" leaves out closing costs, moving, the first repairs, and the reserve a lender wants to see. This guide sizes the real number, then plans it like any other dated goal.
1Size the real cash number, not the down payment
For a $450,000 home:
| Item | Rule of thumb | Amount |
|---|---|---|
| Down payment | 10–20% of price | $45,000–$90,000 |
| Closing costs | 2–5% of price | $9,000–$22,500 |
| Moving, first repairs, furniture | 1–2% | $4,500–$9,000 |
| Reserve after closing | 3 months of the new payment | $9,000 |
At 10% down the real number is about $70,000, not $45,000. At 20% it's about $115,000. Under 20% you'll pay PMI — often worth it to buy years earlier; the rent vs. buy calculator shows the break-even for your numbers.
2Pick the date from the monthly amount you can actually keep
Take the real number, subtract what's saved, and divide by what you can put in every month without touching the emergency fund or dropping below the 401(k) match. $70,000 − $18,000 = $52,000; at $1,600 a month that's 33 months. If 33 months is too long, the levers are the number (a smaller place, a lower down payment) or the income (a bonus, a vest) — not the emergency fund.
3Hold it somewhere boring
Money you need in under five years doesn't belong in stocks. A 25% market drop the year you planned to buy is a two-year delay. High-yield savings, a money-market fund, or Treasury bills matched to the date. At 4%, $52,000 saved over 33 months earns about $2,600 — small, safe, and yours on the day.
The compound interest calculator at 4% with your monthly amount gives the exact date.
4Point the lumps at it
A bonus, a vest, a tax refund, a gift. Each one is a lump sum matched to the goal on its date, and each one pulls the date in. Two $8,000 vests move the 33-month plan to about 23 months. This is the single biggest accelerator most people leave unused.
5Keep the credit side clean while you save
The lender looks at more than the cash. Keep credit utilization under 30% (under 10% in the last six months), don't open new cards or financing, and keep debt-to-income under 36% including the new payment. Paying down a car loan in the final year can do more for your approval than an extra $5,000 of down payment.
6Know what "ready" means, in numbers
You're ready when: the real cash number is in the account, the emergency fund is still intact at three to six months of the new (higher) essentials, and the new payment — mortgage, tax, insurance, PMI, HOA — fits inside your plan with the same margin rent did. If the payment only works with the raise you're expecting, you're not ready; you're a year out.
The plan, in Allocate
You'd say: "We want a $450k house in about three years, 10% down. We have $18k. I get $8k RSU vests in June and December." Allo-Bot proposes:
- Goal: house cash, $70,000 (down payment $45,000, closing $13,500, moving $4,500, reserve $7,000). $18,000 in hand.
- Monthly: $1,600 from take-home into high-yield savings at 4%.
- Expected income: RSU vests, June and December, ~$8,000 after tax each → house cash.
- Date: on track in 23 months, ten months sooner than on monthly alone.
- Emergency fund stays at $16,000, untouched. Card balances kept under 10% of limits from month 17.
If the target price changes — "make it $500k" — the plan re-sizes the cash number and the date and stages the change for your approval.
Frequently asked questions
Should I put 20% down to avoid PMI?
Not necessarily. PMI on a 10% down loan often runs 0.5–1% of the loan a year and drops off once you reach 20% equity; waiting years to save the other 10% can cost more in rent and price growth than the PMI does. Run your own numbers in the rent vs. buy calculator.
Where should I keep a down payment while saving?
Somewhere with no chance of loss on your date: high-yield savings, a money-market fund, or Treasury bills. Anything you'd need within five years shouldn't be in stocks.
Can I use my 401(k) for a down payment?
You can borrow from some 401(k) plans or take a hardship withdrawal, but a withdrawal is taxed and, under 59½, penalized, and a loan comes due in full if you leave the job. Both are last resorts; a longer timeline is almost always cheaper.
This guide is educational and uses invented numbers — not investment, tax or legal advice. Your income, taxes and goals are your own; talk to a qualified professional about your situation.