It can at times feel daunting to buy a home. In many cities, home prices are rising and pushing Americans increasingly further from their homeownership dreams. The difficulty of buying a home starts long before you decide to become a homeowner, though. Closing costs and down payments mean people may need to spend years saving for a home before they can sign the deed. For people trying to thread the needle between a smart homeownership decision, a secure retirement and ample general savings, it’s important to develop a holistic financial plan. Below, we explore the relationship between time, savings and upfront costs of homeownership to understand the scope of the difficulty young Americans face in buying a home.
In order to find out how much millennials need to save to buy a home, we looked at data on 60 different home buying situations. Specifically, we estimated the monthly savings needed for millennials between the ages of 25 to 34 to afford the down payment and closing costs on a home worth between $100,000 and $1,000,000. We assumed a 20% down payment and closing costs equal to 5% of the home value.
We also assumed your money would not just be sitting under a mattress while you were saving it. In our calculations, we assumed an annual percentage yield of 2% on your savings. Banks like Ally and Synchrony both offer annual percentage yields (APYs) well above our 2% threshold.
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