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Saving up for a down payment

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THE SCENARIO Last week, we looked at Sarah's desire to buy a house, and figured out how much a bank would lend her. What we didn't cover, however, is that lenders typically require down payments when they give people loans. The simplest case is that most of the time, banks require you to come up with 20% of the value of a property, and they'll lend you the other 80%. So let's say that a bank will lend Sarah $360,000 to buy a house, and that constitutes 80% of the total purchase price of the house. Sarah will have had to have come up with a down payment if she wants to buy it. Fortunately for Sarah, she's been investing money for some time now with the anticipation of wanting to make a major purchase like this. The Question: If Sarah has invested $650 every month, and has made a 9.5% average annualized return on her money, how long would she have needed to invest in order to have enough money to make the down payment on the house today? Assume that she started with an empty bank account.
THE SOLUTION The first thing we need to do is figure out how much Sarah's down payment will be. Since the bank will loan her $360,000, and that's 80% of the price of the house, the house costs $360,000 ÷ 80% = $450,000. Sarah's down payment has to be 20% of the price of the house, which is $450,000 x 20% = $90,000. Now that we know Sarah's goal, we can use the calculator to figure out how long it'll take her to get there. First things first, make sure the calculator is using 12 Payments per Year. N: (This is what I'm trying to find) I/YR: 9.5 (Sarah's investments have made a 9.5% return) PV: 0 (Sarah started with nothing in her bank account) PMT: -650 (Sarah has invested $650 every month) FV: 90,000 (Sarah needs $90,000 to make that down payment)

Investing her money over time, Sarah has managed to come up with her down payment in 93.86 months.

Clearly, saving up for a down payment on a house takes time, effort, discipline, and forethought. How tempting would it have been over that span of nearly 8 years to let 'life get in the way' and not save one month? After all, it's Christmastime. And then income taxes are due. And then it's the niece's birthday, or a work anniversary, or that vacation really sounds nice, and doesn't Sarah deserve it? The sort of dedication over time it takes to achieve this type of goal is a challenge to build and maintain, but if Sarah didn't do it, then she wouldn't be able to buy the house. At different points in time, there are different loan options available that require lower down payments, but it's hard to predict years ahead of time whether they'll be available when you want to use them.

What do you think? Should Sarah even bother with this 8-year journey to a down payment? What kinds of difficulties do you think she'd face? Or could she get it done even faster? If so, how? Let us know in the comments!