A Down Payment for an Engagement Ring: Fair Trade?

Nearly half of women would trade a big engagement ring for a down payment on a house, according to a recent survey by ERA Real Estate of about 1,000 women in committed relationships. Buying a house is a huge financial goal, so it makes sense so many women would say that.

But here’s the thing: You’re not looking at the same amount of money when you’re comparing engagement rings and down payments. Let’s look at the numbers, shall we?

The National Association of Realtors puts the average home price at about $195,700 in 2013. The average engagement ring cost $5,431 in 2012, according to the 2013 Real Weddings Survey from XO Group. The general down-payment rule of thumb is to put down 20% of the home’s value, but homebuyers can get an FHA mortgage for as low as a 3.5% down payment.

Even at that 3.5% level, the down payment on the average U.S. home is $6,850, and at that level, you’re looking at a higher mortgage rate, which means paying more in interest than someone who puts down 10% ($19,570) or 20% ($39,140).

The Bottom Line

If a groom-to-be uses the three-months-salary “rule” for how much he can pay for an engagement ring (at the average ring cost of $5,431), that would put his income just more than $21,000 a year. That’s less than a third of the estimated average household income of $71,317, according to the 2012 Census estimates, the most recent available. Again, that’s household income, but even dividing that by two workers puts our average ring-buyer in a below-average earning bracket. It’s likely that person is looking at below-average homes, too, making the down payment/engagement ring swap more plausible.

So here’s the thing: If owning a home is a huge goal for the couple, it makes a lot of sense to put several thousand dollars toward saving for a home instead of a big engagement ring, assuming your significant other is on board with that idea. However, a big ring and a down payment are not necessarily exchangeable goods, so a conversation about this idea may go like this: “I could buy you a really nice engagement ring now, or we could have enough for a down payment on a house a lot sooner.” How soon depends on your credit standing (you can see where your credit scores currently stand with the free Credit Report Card) and the price of homes you’re thinking about, but it could be a really good strategy for reaching financial goals ahead of schedule.

Mostly, it comes down to personal preference. It’s probably a good idea to talk about the idea before surprising your significant other with a beefed-up savings account instead of the engagement ring she may be hoping for.