• First-time buyers today need a year longer to save for a 20% down payment than they did five years ago.
• Renters will need to save an additional $369 per month in the coming year just to keep up with the forecasted growth in home values.
• Most first-time buyers put down less than 20%, but today’s low mortgage rates mean monthly payments can remain affordable with a smaller down payment.   

U.S. renters earning the typical renter income and saving at the typical renter rate should expect it to take more than a quarter century to save up for a 20% down payment on the typical U.S. starter home — and the time frame can be even longer for many renters of color. 

The time needed to save an adequate down payment has risen over the past several years, and cobbling together a down payment remains the highest hurdle most buyers will need to clear on the way to homeownership. But there are a few silver linings unique to today’s market that give first-time buyers a few advantages, according to a Zillow analysis of home values, and incomes. More aggressive saving and/or a smaller down payment (buyers can put down as little as 3% in many cases) can cut the savings time down dramatically. Expanded opportunities for remote work can open up more-affordable areas, and ultra-low mortgage interest rates can make the monthly payment manageable once the down payment is secured.

Roughly two-thirds (64%) of first-time buyers put less than 20% down on their first home, according to the 2020 Zillow Group Consumer Housing Trends Report, and a quarter put down 5% or less. Less than half of first time buyers said they saved the majority of their down payments themselves, meaning the rest used alternate means including gifts and loans from family and friends or tapping into retirement accounts and investments to come up with their down payments. But not everybody has those opportunities. Black and Latinx home buyers were more likely to say they saved at least some portion of their down payments themselves compared to white home buyers, illustrating some of the disparities in how households are saving up for their American dream. 

Saving is really the only option for those first-time buyers without the luxury of relying on gifts and investments for a down payment, and it’s becoming increasingly more difficult as home prices soar. For renters making the median U.S. renter income (as of March 2021) of $3,855 per month and putting 2.4% of their income into savings (the median rate for renters), it will take a whopping 26.8 years to save for a 20% down payment on today’s typical starter home, priced at $148,527. That number seems high, and it is — but the good news is that 20% isn’t required. The down payment on most conventional loans can be as low as 3%, bridging the time needed to save for an adequate down payment on a typical entry-level home under the same assumptions down to just  down to 4 years. 

For renters who are prepared to be more aggressive with their savings, we estimated how long it would take assuming they save 10% of their income. For a 20% down payment on the typical starter home, it would take 6.4 years at a savings rate of 10% (up almost exactly one year from the time it would have taken in 2016) and less than one year, around 11.5 months, to save up a 3% down payment. 

But those are national medians, and there are huge variations in the time it takes to save for down payments across the country. In notoriously pricey San Francisco it takes the typical renter saving 2.4% of their income 72.6 years to save a 20% down payment on the local starter home, even though renter incomes there are more than twice the national median. If Bay Area renters saved 10% of their income, it would still take 17.4 years to scrape together a 20% down payment. But in places like Birmingham, AL, renters saving 10% of their income can secure a 20% down payment on the local starter home in as little as 4.7 years, and a 3% down payment in less than 9 months. 

Opportunities & Trade-offs

And for many, the opportunity for remote work has opened doors to homeownership — part of what Zillow calls the Great Reshuffling. Under this scenario, those who cannot afford a down payment in San Francisco might be able to afford it elsewhere. A typical San Francisco renter, if able to do their job remotely, could save enough for a 20% down payment on a starter home in Austin in about six years and eight months, and a similar home in Phoenix in five years and seven months. A similar renter in Boston could save enough for a 20% down payment on a starter home in Miami in half the time it would take for a local starter home ― 6.5 years, instead of 13 years. On the other hand, a typical renter in Austin hoping to make a move to San Francisco would need to save for 28 years and three months.

Renters of color that are seeking homeownership may be in the best position to take advantage of enhanced work-from-home flexibility —  which is a good thing, because the playing field is already not level for these communities. Many Black and Latinx renters often start off the home buying process at a disadvantage, with lower median incomes and lower incomes that lead to longer years to save. It will take Black and Latinx renters 40.1 and 31.8 years, respectively, to save a 20% down payment on the typical U.S. starter home at a 2.4% savings rate, compared to white renters who could save that sum in 25.3 years and Asian renters who could save that sum in 18.6 years. The longer time it takes for renters of color to save for a downpayment, along with other structural barriers including lack of access to credit and mortgage denials, are just some of the reasons that the median age of Black and Latinx homeowners is increasing over time compared to the median age of white homeowners. 

And while it is true that not all buyers need to put a full 20% down and many can secure a mortgage with as little as 3% down, there is a tradeoff. A smaller down payment means a larger monthly mortgage payment, especially with the introduction of mortgage insurance required by many lenders when the down payment is less than 20%. Still, the benefits of owning and gaining equity in a home might outweigh the costs — and even more so in a hot market like today’s where homes are appreciating at record rates. It is important for buyers to consider how monthly payments change with different down payment options. The monthly payment on a typical U.S. starter home with a 20% down payment would be $709; at a 3% down payment, the monthly payment rises to $953. 

Looking Ahead

One last wrinkle: All of this is based on current incomes and home values. But growth in starter home prices has rapidly outpaced renter income growth since before the pandemic, and currently starter homes are growing in value at almost 7 times the monthly rate of renter income growth (starter homes are growing 1.8% month-month, compared to 0.26% for renter incomes). That means it’s going to take a lot more for today’s renters to save up for tomorrow’s homes. The typical, median U.S. home — more expensive than starter homes — is expected to rise 14.9% in value by this time next year. And because starter homes have been growing faster in value than mid-tier homes, we’re likely to see equally high or even higher value growth for the bottom of the market, meaning renters will need to save even more just to stay afloat. 

Renters saving at the median 2.4% renter savings rate are currently saving about $92/month. To account for a 14.9% price increase over the next year (or, again, potentially more), an additional $369 per month must be saved on top of current savings — or roughly 4x the current level. And given that many renters were severely impacted by the pandemic and are still struggling to get back on their feet, saving for the future may not be an immediate priority.

The upshot is that without the equity from a previous home sale, first-time home buyers face more challenges in coming up with a down payment than repeat buyers. In a housing market where prices are rising at record rates, especially when compared to renter incomes, the ever-increasing sum of a 20% down payment can feel out of reach. The good news is that buyers who want to take advantage of today’s low mortgage rates can do so without putting a full 20% down ― most conventional mortgages allow as little as 3% to 5%. That lower upfront payment comes with higher monthly payments, but the opportunity to build equity can outweigh those extra costs for many. Additionally, opportunities to work from home and potentially move to a more-affordable locale as part of the Great Reshuffling could allow more would-be buyers to save more quickly for their piece of the American dream.