Purchasing a home is one of the most important financial actions that anyone will take throughout their lives. Once you leave renting behind, you’ll begin putting your money into a store of value that you can pass down to your children or sell to power your retirement. However, buying a home is also a complex undertaking for most of us, who need to put down a mortgage payment. But once you know how much you should save for a down payment, the decision will be a little bit easier.

How Much Should I Save For a Down Payment?

There’s a wide range of possibilities when it comes to settling a down payment. While there’s a well-known gold standard, it’s also possible to secure a home loan with surprisingly little capital. If you get a loan through the Federal Housing Administration, you might only have to pay as little as 3.5%. However, just because you can doesn’t mean you should.

A lower down payment means more money spent in interest, higher monthly payments, and other potential charges. Overall, it’s important to take everything into account and be sure you’re making the best decision.

The Gold Standard

For years, it’s been common wisdom that a 20% down payment is the ideal path toward a mortgage. Even if your credit score and income aren’t necessarily terribly high, paying 20% will show your lender that you’re a responsible, goal-oriented saver. You can also avoid a variety of expenses, enjoy low-interest rates, and pay off your home more quickly; all of this boils down to money saved in the long-run. Not to mention, you’ll start out with much more equity in your home and build equity faster.

The Minimum

If you’re a veteran, you may be able to secure a housing loan with zero money down through the Department of Veteran’s Affairs. However, this option isn’t open to everyone for many reasons. A Federal Housing Administration loan with a 3.5% down payment is more accessible, but it can carry considerable drawbacks. While you can theoretically attempt to secure a home loan with anywhere between 3.5% and 20% in a down payment, the further you are from the 20% gold standard, the less likely you are to have your loan approved.

What Do People Usually Save?

Interestingly, people generally don’t put down 20% on their homes. The average down payment for a first-time homebuyer is much lower, at 7%, and the average down payment is 13%.

With rising home prices and, in particular, high prices for rent, there are good reasons to go for a lower down payment if possible. For instance, the average monthly home mortgage payment in Phoenix, Arizona is about $1,500. This is already a hefty fee, and it can grow even higher due to mortgage insurance and heightened interest rates if you place a low down payment.

However, renting a home in Phoenix can still be much more expensive than that, with prices going well above $2,000 in many cases. You’re not just calculating what’s the most efficient way to buy your home, but what’s the most efficient way to live compared to your current rent expenses as well.