How to Save a 20% Down Payment: A Step-by-Step Plan

In many countries, the difference between putting down 19% and 20% isn't just one percentage point of equity. It's also the line for avoiding private mortgage insurance (PMI in the US) and getting your lender's best interest rates.

PMI typically costs 0.5–1.5% of the loan a year. On a $300,000 mortgage, that's $1,500–$4,500 extra every year until you owe less than roughly 80% of the home's value. Stretching to the full 20% often saves more over the life of the loan than the smaller down payment would have earned invested elsewhere.

The same is true where there's no PMI: a bigger down payment lowers both your monthly payment and the total interest you'll pay. You can see the difference in the Mortgage Calculator.

Start with the big picture. The Home Affordability Calculator gives you a realistic home price for your income and the debts you already have. Treat that figure as a ceiling, not a goal. Most buyers are better off aiming 10–20% below it, to leave themselves some breathing room.

So if the calculator says you could afford a $400,000 home, a sensible planning target is probably $320,000–$360,000. That keeps your mortgage payments comfortably under 28% of your monthly income and leaves room for whatever life brings.

The usual starting point is 20%. The exceptions are when your local market expects more (some cities want 25–30% from first-time buyers), when you can use a government scheme that allows a low down payment without PMI, or when you have so much invested that it makes sense to put less down and keep the money working.

For a $350,000 home, 20% is $70,000. That's your savings goal.

Be realistic here. A tight timeline pushes you towards safe, low-return accounts (because the money can't be exposed to market swings), which makes the saving harder. A longer one lets you take a modest amount of investment risk, so returns can do some of the work.

First-time buyers typically take 3–7 years. Aim for the longer end if your income is rising or your living situation lets you save hard. Only aim shorter if you've already saved 50%+ of the target.

This is where the Savings Goal Calculator comes in. It takes account of what you've already saved, the return the money earns while it waits, and the time until your target, and tells you how much to put aside each month.

For our $70,000 target with $10,000 already saved, a 5-year timeline and a 4% safe return, you'd need to save about $872 a month. Stretch it to 7 years and that falls to $587. Squeeze it into 3 years and it jumps to $1,538. The timeline is the lever you have the most control over.

Where you keep your savings matters as much as how much you save, and the right home for it depends on your timeline.

Saving by hand rarely lasts, but automatic saving does. Set up a standing order or automatic transfer that moves your monthly amount into a dedicated down-payment account on the same day each month, ideally the day after your salary arrives.

Keep it in a separate account, not your everyday one. If you can't see it, you're less likely to spend it. Many banks let you name your accounts, so call it something like "House 2031" to keep the goal in view.

Your regular saving is the foundation. The extras are how most successful savers finish years early.

Three that work well: bonuses (send 70%+ straight to the down-payment account), pay rises (split each one, half for everyday life and half for the goal), and side income (save 100% of it until you reach the target). Together these can take 12–24 months off your timeline without changing your regular monthly saving at all.

Try to hold your lifestyle steady until you get there. A 3% pay rise that goes 100% into savings, year after year, makes a big difference to your finish date, and the Savings Goal Calculator will show you how much.

Asha is 28 and earns $72,000/year, about $4,800/month take-home after tax and retirement contributions. She has $10,000 saved, and her target is $70,000 in 5 years.

Steps 1–4 tell her she needs to save about $872/month at a 4% return, which is about 18% of her take-home pay. It's tight, but doable. She decides to use a balanced fund instead (7% expected return), which brings the monthly amount down to about $780 but adds some risk.

She gets a $4,000 bonus in year 1 and puts $3,000 of it towards the goal. In year 2 she gets a 5% raise, keeps her spending the same, and sends the extra $200/month to her savings. By year 4 she's reached $70,000, nearly a year ahead of plan, on a modest income.

• Using the down-payment account as an emergency fund. If the two are mixed, every flat tyre or laptop repair pushes your goal further away.
• Keeping the money in an ordinary current account at 0% interest. Over five years, even a basic 4% savings account adds 11% more to the pot for nothing.
• Investing a 2-year goal in shares. Markets can fall faster than you have time to recover, so match where you save to your timeline.
• Letting spending rise with your income. Without a deliberate split, pay rises quietly disappear into everyday life and the finish date never moves.
• Counting on help from family that's never been put in writing. A kind promise isn't a financial plan.

If the numbers really don't add up (because of high living costs, debts to repay or family commitments), a smaller down payment may be the right choice. Putting down 10% and paying PMI isn't ideal, but it gets you into a home and building equity rather than paying ever-rising rent.

If you go that way, aim for the smallest down payment that avoids your lender's most expensive pricing, plan to refinance or pay extra off the loan to get rid of PMI as quickly as you can, and keep a steady recurring investment plan going alongside, so your long-term wealth keeps growing.