The 20% Down MYTH: The Real Truth Around the Down Payment

The real estate industry changes frequently, but so many of us rely on information passed down from people who haven’t bought or sold a home in decades. One of the biggest myths new homebuyers hear from their parents, grandparents, or even older friends or coworkers is that they need to have a 20% down payment.

20% is a HUGE amount of money in today’s real estate market.

With the average home price in the country hovering around $375,000 – a 20% down payment would be about $75,000. Saving that much money on top of the rising costs of everything around us sounds impossible. The good news is that you can get into a home of your own with way less than 20%.

Let’s say that again: you can get into a home of your own with less than 20%. In fact, according to a report by the National Association of Realtors, the average percentage of down payment was only 12%, and that number dropped to just 6% for homebuyers under the age of 30.

How can you get into a home with less than 20% down? Let’s take a look.



Down Payment Requirements

Different types of loans have different requirements. The percentage down is one of the requirements that varies based on the loan type and your financial situation.

Fha Loan – FHA loans are very popular with first-time home buyers, and for a good reason. With an FHA loan, you only need to put down 3.5%. You will be charged PMI, which is a monthly fee added on to your mortgage if you have less than 20% equity. While the extra expense is not ideal, it is still better than trying to save tens of thousands of dollars to buy a home.

VA Loan – The VA loan is a huge benefit available to veterans and military service members. With this type of financing, you don’t need a down payment. That’s right, you can get into a home for zero down. Plus, with a VA loan, you don’t get charged PMI.

USDA Loan –  Another zero-down option is the USDA loan. These are hard to qualify for since the home you are buying has to fall to be located in an eligible area and meet specific requirements. However, if you are planning to purchase a home in what is considered a rural area, you should look into a USDA loan.

Conventional Loan –  Conventional loans are known for having more strict requirements, but if you have good credit and a low debt-to-income ratio, you may be able to get a conventional loan with as little as 3% down. If your credit isn’t perfect, but you meet the other financial requirements, you can probably still get into a home using a conventional loan with 10% down.



Is a Larger Down Payment Better?

Aside from loan requirements, why would someone want to put down so much cash on a home? There are some benefits:

  • You’ll lower your monthly payment.
  • You’ll likely receive a lower interest rate.
  • You won’t be charged PMI.
  • You’ll have more equity in your home.

On the other hand, saving that cash and entering into a home with less than 20% down will allow you to save your money and possibly invest it elsewhere, pay off other debts, build your emergency savings fund, or use it to fix up and furnish your new home.



Let’s Get You Into a Home!

Now that you know you don’t need to save 20% let’s get you into a home. We can give you some tips on how to cover your down payment and would love to guide you through the buying process. Give us a call to get started!


Whether you are a first time homebuyer or you're ready for a bigger home and you've decided to sell,
LUXRE is here for YOU every step of the way!

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