Should I worry too much about saving my 20% down before buying my first house?
The only problem that I see is that by not giving the 20% right away, you might need to pay PMI for a few months. In addition, in the case of conventional loans, I heard that banks will not remove the PMI after reaching 80% LTV without doing an appraisal. In order to be removed automatically, you need to reach 78% LTV.  Finally, I think you can get a better interest by giving 20% down, and you can get a conventional loan instead of a FHA loan, which offers the option to avoid the PMI altogether (on FHA, you have two PMIs: one upfront and one monthly, and the monthly one is for the life of the loan if you give less than 10%).
With an annual income of $120,000 you can be approved for a $2800 monthly payment on your mortgage. The trickier problem is that you will save quite a bit on that mortgage payment if you can avoid PMI, which means that you should be targeting a 20% down-payment on your next purchase. With a $500,000 budget for a new home, that means you should put $100,000 down. You only have $75,000 saved, so you can either wait until you save another $25,000, or you can refinance your current property for $95k+ $25k = $120k which would give you about a $575 monthly payment (at 30 years at 4%) on your current property. Your new property should be a little over $1,900 per month if you finance $400,000 of it. Those figures do not include property tax or home owners insurance escrow payments. Are you prepared to have about $2,500 in mortgage payments should your renters stop paying or you can't find renters?  Those numbers also do not include an emergency fund. You may want to wait even longer before making this move so that you can save enough to still have an emergency fund (worth 6 months of your new higher expenses including the higher mortgage payment on the new house.) I don't know enough about the rest of your expenses, but I think it's likely that if you're willing to borrow a little more refinancing your current place that you can probably make the numbers work to purchase a new home now. If I were you, I would not count on rental money when running the numbers to be sure it will work. I would probably also wait until I had saved $100,000 outright for the down-payment on the new place instead of refinancing the current place, but that's just a reflection of my more conservative approach to finances. You may have a larger appetite for risk, and that's fine, then rental income will probably help you pay down any money you borrow in the refinancing to make this all worth it. "Advice from a long-time flipper You negotiate price based on four factors and none of these are set in stone: How much you love the house.  Is this house a 100 out of 100 for you or a 85 or a 75.  How much have you compromised. What is the likelihood that you will find a house that will make you just as happy or at least close.  You might have a house that is a 95 out of 100 but there are five other houses that you rated between 93-95.   What is your timeframe.  Know that playing hardball takes longer and can knock you out of the game sometimes and takes a little while to find a new game. What is the relative housing market.  Zillow and other such sites are crap.  Yes the give you a generalized feel for a community but their estimates are off sometimes by 30-40%.  Other factors like street/noise/updates to house/ and so on are huge factors.  You will have to really navigate the area and look for very comparable houses that have recently sold.  Then use average housing movements to extrapolate your future houses cost. As a buyer you have two jobs.  Buy the house you want and manage your agent.  Your agent wants you to buy a house as soon as possible and to increase their reputation.  Those are their only two factors of working.   By you offering closer to the asking price they are able to get their sales as quick as possible.  Also other agents will love working with them.  In fact your agent is selling you on the home and the price.  Agents hardly worry about you paying too much - as most buyers oversell the deal they get on their home.  Admitting that you paid too much for your house is more of an admission of ignorance of yourself, compared to agent incompetency. If you decide to low-ball the owner, your agent spends more time with you and possibly reduces their reputation with the selling agent.  So it is common for agents to tell you that you should not offer a low price as you will insult the owner. My advice.  Unless the home is truly one of a kind for the market offering anything within 20% of the asking price is DEFINITELY within range.  I have offered 40% less.  If a house is asking too much and has been on the market for 8 months there is no way I am going in with an offer of even 15% lower.  That leaves you no room.   What you do? First think about how much you think this house could sell for in the next 3 months.  In your example let's say 80K based on conservative comps.  Then take the most you would actually pay for it.  Let's say 75K.  70K is about as high of an opening offer I would go.   Do NOT tell your agent your true breaking points.  If you tell your agent that you would go to 75K on the house.  Then that is what their negotiations will start at.  Remember they want the sale to happen as soon as possible.  Very likely the other agent - especially if they know each other - will ask if how flexible you are going to be.  Then next thing you know your agent calls you back and says would you be willing to go 77K or the owner is firm at 80K. Do not give up your position.  You should never forecast to your agent what your next bid or offer would be for the house.  Never get into scenarios or future counters.   So you offer 70K.  If your agent asks you how firm that is?  ""Very firm"".  If your agent doesn't want to take the offer to them, ""Thank you for being my agent, but I am going to be working with someone that represents what I want.""   If the owner says ""You are done too me cheapskate.""  Well that's how it goes.  If the owner stays firm at asking or lowers - then you can come up if you feel comfortable doing so.  But understand what your goal is.  Is it to get a house or to get a good deal on a house?  Mine was always to get a good deal on a house.  So I might offer 72K next.  If they didn't budge, I am out.  If they moved down I went from there.   Easy Summary The fact is if they aren't willing to negotiate with you enough it always ends the same.  You give them your take-it-or-leave-it offer.  You tell your agent that if he/she comes back with one penny over it comes from their commission (god I have said this 100 times in my life and it is the best negotiation tactic you have with your agent).  The owner says yes or no and it is over." "The policy you quoted suggests you deposit 6% minimum. That $6,000 will cost you $4,500 due to the tax effect, yet after the match, you'll have $9,000 in the account. Taxable on withdrawal, but a great boost to the account.  The question of where is less clear. There must be more than the 2 choices you mention. Most plans have 'too many' choices. This segues into my focus on expenses. A few years back, PBS Frontline aired a program titled The Retirement Gamble, in which fund expenses were discussed, with a focus on how an extra 1% in expenses will wipe out an extra 1/3 of your wealth in a 40 year period. Very simple to illustrate this - go to a calculator and enter .99 raised to the power of 40. .669 is the result. My 401(k) has an expense of .02% (that's 1/50 of 1%) .9998 raised to the same 40 gives .992, in other words, a cost of .8% over the full 40 years. My wife and I are just retired, and will have less in expenses for the rest of our lives than the average account cost for just 1 year.  In your situation, the knee-jerk reaction is to tell you to maximize the 401(k) deposit at the current (2016) $18,000. That might be appropriate, but I'd suggest you look at the expense of the S&P index (sometime called Large Cap Fund, but see the prospectus) and if it's costing much more than .75%/yr, I'd go with an IRA (Roth, if you can't deduct the traditional IRA). Much of the value of the 401(k) beyond the match is the tax differential, i.e. depositing while in the 25% bracket, but withdrawing the funds at retirement, hopefully at 15%. It doesn't take long for the extra expense and the ""holy cow, my 401(k) just turned decades of dividends and long term cap gains into ordinary income"" effect to take over. Understand this now, not 30 years hence.  Last - to answer your question, 'how much'? I often recommend what may seem a cliche ""continue to live like a student."" Half the country lives on $54K or less. There's certainly a wide gray area, but in general, a person starting out will choose one of 2 paths, living just at, or even above his means, or living way below, and saving, say, 30-40% off the top. Even 30% doesn't hit the extreme saver level. If you do this, you'll find that if/when you get married, buy a house, have kids, etc. you'll still be able to save a reasonable percent of your income toward retirement.  In response to your comment, what counts as retirement savings? There's a concept used as part of the budgeting process known as the envelope system. For those who have an income where there's little discretionary money left over each month, the method of putting money aside into small buckets is a great idea. In your case, say you take me up on the 30-40% challenge. 15% of it goes to a hard and fast retirement account. The rest, to savings, according to the general order of emergency fund, 6-12 months expenses, to cover a job loss, another fund for random expenses, such as new transmission (I've never needed one, but I hear they are expensive), and then the bucket towards house down payment. Keep in mind, I have no idea where you live or what a reasonable house would cost. Regardless, a 20-25% downpayment on even a $250K house is $60K. That will take some time to save up. If the housing in your area is more, bump it accordingly.  If the savings starts to grow beyond any short term needs, it gets invested towards the long term, and is treated as ""retirement"" money. There is no such thing as Saving too much. When I turned 50 and was let go from a 30 year job, I wasn't unhappy that I saved too much and could call it quits that day. Had I been saving just right, I'd have been 10 years shy of my target." "First of all, the numbers you give are most probably nowhere near the total expenses you have/need to budget:  Maybe you should have a look at the expenses you had over the last years (look at how much money came in and how much went to the savings and compare this expenses to the sum of all the expenses you have on your list of expenses as plausibility check. Just starting on some numbers you give and assuming the house is the main goal.  House of 300 - 500 k€, assuming downpayment of 30 - 40 %, i.e. somewhere between 90 and 200 k€. I'll go on calculating with 150 k€ which would be 50 % of 300 k€ or 30 % of 500 k€. You want to be there in 8 - 15 a: this means saving 10 - 19 k€ per year. 19 k€/a is clearly impossible with 20 k€ net wage.  10 k€ with 20 k€ net wage means a savings quote of 50 %, so for each € you spend, one goes towards the house. This is doable in the sense that if you continue with 4 k€/a for rent plus a Harz 4 (= 400 €/month) style of life, that would put you to 9 k€ expenses/a, thus 1 k€ saving for unexpected disaster (I'd actually first get a couple of k€ together for such things, and then go as much as possible towards the house). Still, this is not the life style the rest of your goals sounds like.  (You can update this somewhat with the expected income of your girlfriend/wife. But remember that she needs food and clothes as well and you assume she'll need a car of her own) Let me rephrase the savings goal of 150 k€: you'd try to save 3 times the median German household equity within 8 to 15 years. This should tell you that it is a very steep proposition. On the other hand, e.g. Slowakians manage to have a median household equity of ca 60 k€ out of a median income that is roughly half the median income in Germany. So again it is somehow possible, but it will be really tough to live a life style like a Slowakian or Harz 4ler between peers that spend roughly everything (good approximation as we're talking about savings rates above 50 % of net income) they earn.   I think the ""easiest"" way to get your savings going is to postpone lifestyle upgrades.  On the other hand, around Waldeck, 150 k€ would buy you a complete new house of the same size that costs 300 - 500 k€ around Darmstadt. So if you really want to go for the house, I'd recommend not only to save as hard as you can*, but also to look out for possibilities to relocate to a cheaper area. 8 - 15 years should be enough time to decide what area you'd like and then to look for an opportunity without too much pressure. And actually this should be enough time so that also your girlfriend/wife could get herself transferred to another Bundesland. * In reality saving as hard as possible will probably get you nowhere near 150 k€ (there are very few people who manage to do this - though they exist), but if you get to 75 k€ that would mean a reasonably good position for both starting negotiations with the bank about buying a 150 k€ house plus the corresponding payment of the mortgage. If you get there within less than 15 years that would also leave some air in case you change opinion with regard to kids and then leaves a reasonable amount of time to put together your pension.  Consider your psychology about saving towards the house. Even if both of you know that you want it really hard, it may be good to enter a building savings contract (15 years should be reasonable for that way) which will enforce you to keep up the savings rate and also does not allow you to divert money for other purposes. However, I'd say that 6 months into the first job it may be a bit early to fix such savings rates. Maybe for the beginning a savings account that includes some hassle to get the money out again (set low limit and allow any outgoing money to go only to another account of yours) with an automatic savings deposit every month is a way how to safely determine the savings rate you can manage. Maybe you can use this to first put together your new emergency savings which should be first priority anyways.  If you want to cut expenses in order to save, look at the recommendations for people who try to get out of debt: budget your expenses, cook yourself and enjoy this (maybe taking a cooking class together with your girlfriend is a lot of fun, leads to food that may even be more to your taste than restaurant stuff - and is much cheaper), keep book, pay in cash (not by card) and so on.  If you're not a DIY person, try whether you could enjoy becoming one - no magic involved there.  I guess the most important point is to find out how much you want the house and then how hard you are willing to save. This is something only you and your girlfriend can decide (together!).  IMHO you really don't need to invest (unless you drop the house plan), you need to save towards your goals. You may decide to invest a small part of the money while saving in order to learn slowly how that works, but if the house goal is already kind of fixed in time, you don't want to find yourself in the situation that you have to get out of investments at a bad time in order to be able to buy the house. Even if you consider 15 years long enough to do some investing now and then get out some time during the next 15 years, you don't have any money to invest now. Later, the risk posed by the fixed point in time when you need the money is too large: Considering the rather steep saving propositions, the marginal costs of having less money are really large. This means you don't want to go for risky investments => plain old saving is what you need. Consider also that low house prices tend to come during economic crisis (people cannot pay mortgage and have to sell) so within the time window, you want to have your money for anticyclic buying if possible." I am currently in the process of purchasing a house. I am only putting 5% down. I see that some are saying that the traditional 20% down is the way to go. I am a first time homebuyer, and unfortunately we no longer live in the world where 20% down is mandatory, which is part of the reason why housing prices are so high. I feel it is more important that you are comfortable with what your monthly payments are as well as being informed on how interest rates can change how much you owe each month. Right now interest rates are pretty low, and it would almost be silly to put 20% down on your home. It might make more sense to put money in different vehicle right now, if you have extra, as the global economy will likely pick up and until it does, interest rates will likely stay low. Just my 2 cents worth.  EDIT: I thought it would not be responsible of me not to mention that you should always have extra's saved for closing costs. They can be pricey, and if you are not informed of what they are, they can creep up on you. Basically the first thing you should do before you invest your money is to learn about investing and learn about what you want to invest in. Another thing to think about is that usually low risk can also mean low returns. As you are quite young and have some savings put aside you should generally aim for higher risk higher return investments and then when you start to reach retirement age aim for less risky lower return investments. In saying that, just because an investment is considered high risk does not mean you have to be exposed to the full risk of that investment. You do this by managing your risk to an acceptable level which will allow you to sleep at night. To do this you need to learn about what you are investing in. As an example about managing your risk in an investment, say you want to invest $50,000 in shares. If you put the full $50,000 into one share and that share price drops dramatically you will lose a large portion of your money straight away. If instead you spent a maximum of $10,000 on 5 different shares, even if one of them falls dramatically, you still have another 4 which may be doing a lot better thus minimising your losses. To take it one step further you might say if anyone of the shares you bought falls by 20% then you will sell those shares and limit your losses to $2000 per share. If the worst case scenario occurred and all 5 of your shares fell during a stock market crash you would limit your total losses to $10,000 instead of $50,000. Most successful investors put just as much if not more emphasis on managing the risk on their investments and limiting their losses as they do in selecting the investments. As I am not in the US, I cannot really comment whether it is the right time to buy property over there, especially as the market conditions would be different in different states and in different areas of each state. However, a good indication of when to buy properties is when prices have dropped and are starting to stabilise. As you are renting at the moment one option you might want to look at is buying a place to live in so you don't need to rent any more. You can compare your current rent payment with the mortgage payment if you were to buy a house to live in. If your mortgage payments are lower than your rent payments then this could be a good option. But whatever you do make sure you learn about it first. Make sure you spend the time looking at for sale properties for a few months in the area you want to buy before you do buy. This will give you an indication of how much properties in that area are really worth and if prices are stable, still falling or starting to go up. Good luck, and remember, research, research and more research. Even if you are to take someone elses advice and recommendations, you should learn enough yourself to be able to tell if their advice and recommendations make sense and are right for your current situation. As a new graduate, aside from the fact that you seem to have the extra $193/mo to pay more towards your loan, we don't know anything else.  I wrote a lengthy article on this in response to a friend who had a loan, but was also pondering a home purchase in the future. Student Loans and Your First Mortgage discusses the math behind one's ability to put a downpayment on a house vs having that monthly cash to pay towards the mortgage. In your case, the question is whether, in 5 years, the $8500 would be best spent as a home down payment or to pay off the 6.8% loan.  If you specifically had plans toward home ownership, the timing of that plan would affect my answer here, as I discuss in the article.  The right answer to your question can only come by knowing far more of your personal situation.  Meanwhile, the plan comes at a cost. Your plan will get rid of the loan in about 5 years, but if you simply double up the payments, advising the servicing company to apply the extra to principal, it would drop to just a couple month over over 4. As you read more about personal finance, you'll find a lot of different views. Some people are fixated on having zero debt, others will focus on liquidity. In the end, you need to understand each approach and decide what's right for you. Are you trolling right now? If you knew what you were doing when you made that bet, you might consider reinvesting that money.   24yr olds don't buy first-time houses anymore. Houses today are meant for existing landowners and wealthy foreign investors willing to pay cash.