Young people aren’t buying homes as early in their lives as previous generations. Only 37 percent of people aged 25-34 owned in 2018, compared to 45 percent of both Gen Xers and baby boomers when they were that age.
That’s largely because of cost: High real estate prices, stagnant wages, and student loans hold young people back.
Nearly 40 percent of millennials (defined here as those ages 18-34) say that not being able to afford a down payment is their top barrier to becoming homeowners, according to a recent survey from Clever Real Estate, while another 20 percent say that the biggest obstacle is the fact that homes are too expensive.
The earlier you start saving money for a down payment, though, the less you’ll have to put away each month in order to end up with enough.
Below, CNBC calculated how much you’ll need to save per month to put a down payment on a typical home by age 35, given various starting points. The calculations assume a 5 percent rate of return on investments and a price of $275,000, the median home price in the U.S. as of February 2019.
Here’s how much you’ll need to save per month …
If you start saving at age 20:
- For a 5 percent down payment: $51.23
- For a 10 percent down payment: $102.88
- For a 20 percent down payment: $205.77
If you start saving at age 25:
- For a 5 percent down payment: $88.55
- For a 10 percent down payment: $177.10
- For a 20 percent down payment: $354.19
If you start saving at age 30:
- For a 5 percent down payment: $202.19
- For a 10 percent down payment: $404.38
- For a 20 percent down payment: $808.75
Since these figures only cover the down payment, it’s likely that you’ll need a bit more to account for closing costs, insurance and other fees. Home prices vary, too, and it’s possible that the median price will rise in the next five, 10 or 15 years.
On the plus side, though, you may not be in this alone: “57 percent of all first-time buyers plan to buy with a spouse or partner,” according to Bank of America’s Homebuyer Insights Report.
Regardless, the bottom line is that, if you start saving early, you’ll have to put away far less each month — and you’ll give your savings more time to grow.
You can also increase your chances of being able to afford a home by being flexible about where you live. Mid-size cities in the Midwest, for example, tend to offer much cheaper and more accessible housing markets than big cities on the coasts.