How long does it take to save up for a down payment?

The typical homebuyer needs to have spent just over seven years saving up money for a 20 percent down payment on a home, according to a recent analysis from the real estate site Zillow.

Although it is possible to make a down payment on a home using less than 20 percent of the purchase price, this share eliminates the extra expense of private mortgage insurance. Zillow's analysis is based on the assumption of a person earning a median income and putting aside 10 percent of their earnings each month.

In the second quarter of 2018, a person using this method of saving up money would have enough to make a 20 percent down payment on a median priced home in the United States after 7.2 years. This was up from 5.5 years in the second quarter of 1998 and the longest saving period since early 2008.

Zillow says Americans need to wait longer to save up enough money for a down payment because home prices have been rising faster than wages. Their analysis concluded that the typical home appreciated in value by 98.6 percent between 1998 and 2018 while median incomes were only up by 52.6 percent.

"The simple fact that home values have far outpaced income growth, lengthening the time needed to save for a down payment, contributes to millennials' struggles to enter homeownership," said Skylar Olsen, director of economic research and outreach at Zillow. "Saving up for a down payment can be tough, especially when the cost of everyday life outpaces the money you put into the bank. It requires good budgeting and long-term planning. It's one reason why more and more first-time homebuyers are looking to family and friends for financial help when coming up with their down payment."

Besides the figures for the United States as a whole, the report looked at 35 major metropolitan areas in the nation. Home price growth outpaced wage growth in the past two decades in all but two of these cities, often by a factor of two or three to one.

Price growth and wage growth were both strongest in San Jose, Calif. However, price growth was more than three times as strong as wage growth, rising 295.9 percent since 1998 while wages were up 93.3 percent. On a median household income of $118,061 in the market, it would take the typical buyer 21.8 years to save up a 20 percent down payment for a $1.29 million median priced home. This was up from a 10.6-year waiting period in 1998.

Similar trends occurred elsewhere in California. In the Los Angeles market, where home prices were up 244.5 percent in the past two decades and wages were up 62.5 percent, a buyer with a median income would need to spend 18.4 years saving up for a median priced home – up from 8.7 years in 1998. In San Francisco, where prices were up 252.9 percent and wages were up 92.8 percent, the typical buyer would need to spend 18.3 years saving for a down payment. This was up from 10 years in 1998.

Affordability improved in Cleveland, Ohio and Indianapolis, Ind., with wage growth exceeding home price growth in both cities. In Cleveland, wages were up 34.3 percent from 1998 while prices grew by just 26.8 percent; the period required to save up a 20 percent down payment on a median salary fell from 5.5 years to 5.2 years. In Indianapolis, the saving period fell from 5.5 years to 5.1 years as wages increased by 37.6 percent and home prices increased by 28.5 years.

Pittsburgh, Pa. had the briefest saving period at just 4.8 years – one year longer than in 1998. Median home prices in the city increased by 111.8 percent between 1998 and 2018, while median wages increased by 66.7 percent.

Personal savings are often the prime source of down payment funds, especially among first-time buyers. The 2018 Zillow Group Report on Consumer Housing Trends found that 43 percent of the typical down payment comes from saving up money over time.

Aspiring buyers can employ several strategies to help them put aside funds for a home purchase. Peter G. Miller, writing for the budgeting site The Simple Dollar, says it helps to establish a budget and see where you may be able to cut expenses. You'll also want to check your credit report to make sure there are no errors that might increase your borrowing costs.

Some strategies allow you to accrue funds more quickly. Kay Bell, writing for the financial site Bankrate, says options include establishing a series of certificates of deposits to mature at different points, selling unwanted items, taking a second job, or requesting a raise at your place of employment.

Some people, particularly young first-time buyers, may request a financial gift from friends or family to go toward the down payment. It helps to include documentation stating that the person giving the gift does not expect it to be repaid, as that type of arrangement can affect one's borrowing power.

Another option is to tap into a retirement account, which can provide thousands of dollars toward purchasing a house. However, this will also limit the growth of your retirement savings.


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