When buying a home, the down payment is simply the amount of money you are putting towards the purchase of your home. For example on a $200,000 home, 20% down would be $40,000. That's no small amount to have or save up.
Wouldn't it be nice to get some down payment assistance? Check out our eligibility finder.
Despite what you've heard, a 20% down payment on a home is NOT necessary. Here’s why:
The 20% Down Myth
The myth of the 20% down payment requirement has been circulating since the housing crisis back in 2010. Access to credit tightened, even to responsible buyers who had the income to buy, but lacked a large down payment, faced the same challenges. Thankfully, the lending landscape since then has improved.
Low down payment options have been around for decades. In fact, data shows that low down payment loans with sound underwriting are just as successful for investors as loans with large down payments.
However, putting down 20% down isn’t necessarily a bad thing. It may be the right choice for you if you have the funds. It gives you 20% equity position in your home and helps you avoid paying for monthly private mortgage insurance.
Don't Get Sidelined Watching Housing Costs Rise
At the same time, saving for 20% down is keeping many buyers on the sidelines. That coupled with the high demand is rapidly increasing home prices, making it harder and harder to save for the down payment. The goal posts keep moving farther away while you’re trying to do all the right things.
There are plenty of ways for buyers to make themselves more competitive in a tight market. One is using a low down payment loan, along with down payment assistance. This way, you can leverage and diversify your other investments so all your money isn’t in one asset—your home.
What Are Your Options?
Wait and save. I read an article that it’s estimated to take the average person 14 years or more to save for a 20% down payment. That’s more than 14 years for your pay rent and see home prices and interest rates rise, too. And 14 years later, you’ll have zero equity in the place you live, wiping out your next generation’s wealth-building potential.
Find down payment assistance programs. The majority of DPA programs provide down payment and closing cost assistance, helping with some or all of your costs. There are about 2,300 homeownership programs available across the US, including grants, forgivable loans, below-market first mortgages, tax credits and more.
The average down payment program benefit across all programs is more than $7,500. Just remember that both the home and the homebuyer must qualify for the program so do your research early.
Get pre-approved with a low down payment mortgage. There are several options for buyers today. Keep in mind that you can layer down payment programs with these loans.
- FHA loan: Popular with first-time homebuyers, it allows a 3.5% down payment minimum.
- VA loan: If you are a veteran or member of the U.S. military, look into a VA loan which offers 0% down.
- USDA loan: Eligible in rural and suburban areas, it offers 0% down.
- Home Possible: Freddie Mac’s low down payment loan allows down payments of 3% to 5% and flexible sources of funds for down payments.
- HomeReady: Fannie Mae’s new loan program that allows a 3% minimum down payment for first-time buyers.
- Conventional loans with private mortgage insurance: Allows 3% down payment minimum. PMI will be required if you put down less than 20%. However you can get rid of the PMI once you’ve accrued over 20% equity in your home down the road.
You are Unique - “No One Size Fits All”
For home loans, there’s not a “one size fits all” or right choice for everyone. Like you, your finances and home buying goals are unique. That’s why it’s important to secure your home financing before you tour that dream home.
Begin by investigating your options early: talk to an experienced local lender to get pre-approved, search for homeownership programs in your area and talk to your real estate agent.
Let us know how we can further assist you. Our DPA eligibility tools can help you find DPA options that you might be eligible for.
Best wishes to a successful homebuying journey!
Aundrea Beach-Greco
Mortgage Lender, CMPS
NMLS 333739
📱 +1 702-326-7866
📧 info@aundreabeach.com
🌐 www.AundreaBeach.com
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Aundrea Beach-Greco, CMPS. Licensed Mortgage Loan Officer. NMLS 333739
702-326-7866 info@AundreaBeach.com
Find me online www. AundreaBeach.com
Apply online at www.iLendLasVegas.com
