Saving For A Down Payment V. Retirement

Saving up for a down payment on your new home can feel like a painstaking hurdle for many. By the time you pay taxes, put aside for retirement and cover living expenses it can feel like you don’t have much left to build a reserve. This may have you looking at cutting costs here and there and maybe even consider lowering your contribution for your retirement. Here is a breakdown on whether that is the right option for you.

Retirement Logistics

There are some factors that you will want to consider if you debate lowering your retirement contribution.  First, you will want to take into account your age, where you are in life and your tax bracket. Depending on how much time you have left until retirement and how much you have saved, it may be better to alter your lifestyle and spending instead. Next you should also weigh in on if you have an employer match situation. If your employer is matching your contribution, you may only want to scale back to the max of where your employer is matching as it is essentially free money. Finally, definitely think about any ramifications if you lower your contribution enough where it pushes your income into the next tax bracket. That scenario would also be less beneficial to you in the end.

Other Financial Considerations

When you weigh your options with how to achieve your down payment goal, you may want to reassess how much house you can comfortably afford. It is one thing to reduce your contributions just for the down payment, but if you are planning on purchasing a more expensive home, then your housing costs could potentially keep you from resuming with your higher contributions. Take a hard look at the financials with a mortgage calculator and be sure to factor in taxes, insurance, any HOA’s or PMI costs as well. 

Finally, the big question is just how much do you need for a down payment? The figure of 20% is often what everyone thinks is necessary as you can avoid PMI. However, the reality is that there are certain loans and programs out there where even as little as 3% are possible. Investigating your home loan options will help dictate what is best for you and ultimately how much you will need to start saving.