Saving for a House Deposit
The deposit is not the number you need. Closing costs, reserves and a move-in buffer add more than half again to it at 10% down, and that is where buyers get caught.
Most people saving for a house are saving for one number. The deposit is the biggest of four, and the other three are what turn an approved buyer into one who has to walk away two weeks before completion.
Here is a $340,000 purchase costed properly, at 10% down and at 20%.
The four numbers, not one
You need the deposit, the closing costs, the reserves your lender wants to see after completion, and enough to live in the place once you are in it.
| Number | 10% down | 20% down |
|---|---|---|
| Deposit | $34,000 | $68,000 |
| Closing costs, at 3% of price | $10,200 | $10,200 |
| Reserves, two months of housing | $4,800 | $4,800 |
| Move-in buffer | $3,000 | $3,000 |
| Cash needed | $52,000 | $86,000 |
| Against the deposit alone | 53% more | 26% more |
Notice which way the percentage runs. The smaller your deposit, the larger the gap between the number you saved for and the number you need, because closing costs and reserves do not shrink when the deposit does. The buyer putting 10% down is the one most likely to be short, and is also the one least likely to have planned for it.
Closing costs are the loose figure here. They commonly land between 2% and 5% of the purchase price depending on your state's transfer taxes and title practice, which is a range of $6,800 to $17,000 on this purchase. Your Loan Estimate itemises them, and the CFPB's preparing to shop for a mortgage material walks through the form. Until you have one, budget 3% and treat anything lower as a pleasant surprise.
What 20% actually buys you
It does not buy you approval, and it does not buy you a materially different house. It buys you out of private mortgage insurance.
The CFPB describes PMI as insurance you may be required to buy on a conventional loan with a deposit under 20%, and is blunt about who it protects: the lender, not you. So the question is purely arithmetic. What does it cost, and for how long?
On the 10% route the loan is $306,000. At a PMI rate of 0.75% a year, that is $2,295 a year, or $191.25 a month. It is not permanent. Under the Homeowners Protection Act you can request cancellation once the scheduled balance reaches 80% of the home's original value, and the servicer must terminate it automatically at 78%.
Amortise a $306,000 loan at 6.50% over 30 years and the payment is $1,934.13. The balance reaches $272,000, which is 80% of $340,000, in month 95, just under eight years. It reaches 78% in month 109.
| Route | PMI paid |
|---|---|
| Cancel on request at 80%, month 95 | $18,169 |
| Wait for automatic termination at 78%, month 109 | $20,846 |
So the real trade is $34,000 of extra cash now against roughly $18,169 spread over eight years, plus whatever the smaller loan saves you in interest. That is not an obvious win for waiting. Two more years of saving is two more years of rent, and the house you were pricing may not be the same price when you get there.
The one thing that is not a judgement call: put the cancellation date in your calendar the week you close. The request is free, it is a legal right if you meet the conditions, and $191.25 a month is $2,295 a year to nobody's benefit but your servicer's.
Where to hold it, by timeline
The only question that matters is how long the money has to survive before you spend it.
| Timeline | Where | Why |
|---|---|---|
| Under 2 years | Insured savings, or a CD or T-bill maturing before you buy | No time to recover from a fall |
| 2 to 5 years | Mostly cash, and be honest about the date | The date usually arrives sooner than planned |
| Over 5 years | An investment account is reasonable | Time to ride out a drawdown |
A deposit is a dated obligation, which makes it the opposite of a retirement balance. The comparison of the cash options is in high-yield savings against CDs and money market accounts, and if you want the maturity to land on a known date, a CD ladder does that on purpose.
Keep it separate from your emergency fund. One account holding both means one bad month spends the deposit, and you will not notice until you reconcile.
The build schedule, worked
Suppose you have $12,000 and want the 10% route's $52,000 in three years. That is $40,000 over 36 months.
Held in a savings account paying 4.00%, the $12,000 grows to $13,527 over three years on its own, leaving $38,473 to be saved. The monthly contribution that compounds to $38,473 over 36 months at 4.00% is $1,008.
If $1,008 a month is not available, the schedule is what changes, not the target. At $700 a month the same account reaches $52,189 in 50 months, which is four years and two months rather than three. The one thing that should not change is the total, because arriving with $40,000 against a $52,000 requirement is not "nearly there". It is short.
The reserve lenders want to see
This is the number that surprises people, because it is the one that has to still be there after you have spent everything else.
Lenders commonly want to see about two months of the full housing payment, principal, interest, taxes and insurance, remaining in your account after closing. The requirement varies by loan type and credit profile, and for some it is zero. Ask your loan officer for your figure early, because it is the difference between a clean approval and a conditional one.
There is a second reason beyond the lender's, and it is the better one. A house generates expenses in its first six months that a rental never did: the water heater, the locks, the thing the inspector flagged that you agreed to live with. Arriving with an empty account is how a new owner meets their first $1,800 repair on a credit card at a rate that takes years to clear.
When this does not apply
If you qualify for a low-deposit or assistance programme. Some conventional loans go to 3%, FHA to 3.5%, and VA and USDA loans to zero for those eligible. The closing costs and reserves still apply, so run the same four numbers with a smaller first row.
If the seller is paying part of the closing costs. A seller concession is negotiated and is real money. Do not budget for one you have not agreed.
If your timeline is under a year. Then the question is not where to invest it, it is whether the number is achievable. Reprice the house rather than reprice the risk.
If you have credit card debt at 20% or more. Saving a deposit beside a balance at that rate usually loses, and the mortgage you qualify for is worse besides. That trade is worked through in invest or pay off debt.
If you are not confident you will stay five years. The transaction costs of buying and selling take several years of equity to recover. A shorter horizon than that is an argument for renting, not for a smaller deposit.
Next steps
- Price the house you would actually buy, and take 3% of it as a closing-cost placeholder.
- Ask a loan officer for the reserve requirement on the loan type you expect to use.
- Add a move-in buffer. Two thousand to three thousand dollars is realistic for a first house.
- Total the four numbers, subtract what you have, and divide by the months you have.
- If the monthly figure is impossible, extend the date rather than reduce the total.
- Open a separate account for it, and automate the transfer on payday.
Sources and assumptions. The PMI requirement below 20% and the statement that it protects the lender are the CFPB's, from what is private mortgage insurance. The right to request cancellation at 80% of original value and automatic termination at 78% is from when can I remove PMI from my loan, which applies to single-family principal residences closed on or after 29 July 1999. Savings rates are compared against the FDIC's national rates published 17 August 2026. The 6.50% mortgage rate, the 0.75% PMI rate, the 3% closing-cost estimate, the two-month reserve and the 4.00% savings rate are assumptions for the worked example, not published figures; yours come from your Loan Estimate and your own accounts. Checked 20 September 2026.
