A lack of transparency regarding how much money is required to buy a house creates various problems. For example, one myth exists because of this issue: you need a 20% down payment to purchase a home.

It is not true! This blog post will dispel the 20% down payment myth and discuss other ways to get into your dream home.

When You’re Ready To Purchase A Home

You’ll also want to consider things like the house’s location, the property’s size, and your plans. Purchasing a home is a significant financial decision and shouldn’t be taken lightly.

Before you’re ready to take the plunge, there are many things to consider, such as your current financial situation, job security, and whether you’re prepared to deal with maintenance and repairs. It’s also essential to have a realistic idea of what you can afford, both in terms of the purchase price and the ongoing costs of ownership.

Once you’ve done your homework and are confident that buying a home is the right choice, the next step is to start shopping around. Talk to a few real estate agents, get recommendations from friends and family, and take the time to look at various properties before making an offer.

However, to start the process, you need to make a payment on a house you’re getting.

Concept of Down Payments

The down payment is the initial money you pay towards buying a home, and the mortgage’s outstanding balance is paid off bit by bit in monthly installments over time, typically lasting 15 or 30 years.

Instead of a down payment is a fixed dollar amount, it is usually a percentage of the total purchase price. So, for example, if you’re buying a $200,000 home and make a 20% down payment, your down payment would be $40,000.

The minimum amount you can put down on a home will depend on the type of mortgage you qualify for. For conventional loans, the minimum down payment is typically 5% of the purchase price, while for government-backed loans, such as FHA mortgage loans, the minimum down payment is 3.5%.

There are also programs available for first-time homebuyers that can help with the down payment and closing costs. These include state and local assistance programs and programs offered by private lenders.

The 20% Down Payment Myth

One of the biggest myths about buying a home is that you need a 20% down payment. It isn’t true! While a 20% down payment is ideal, it’s not required.

Several mortgage options allow for smaller down payments, including government-backed loans like FHA and VA loans. In addition, these loans typically have lower credit score requirements and can be an excellent option for first-time home buyers.

A further financing avenue for your home is to gain a conventional loan with private mortgage insurance (PMI). With this loan, you can put down as little as 3% of the purchasing price. However, you’ll be required to continue paying PMI until 20% equity in the home has been established.

If you cannot make a 20% down payment, don’t worry! There are plenty of financing options available that can help turn your homeownership dreams into reality.

How Does A Down Payment work?

The down payment is the upfront cost you pay when you purchase a home. It is typically a percentage of the purchase price and is paid at closing.

The remaining balance on the mortgage is then paid off in monthly installments over a set period of time, typically 15 or 30 years. The size of your monthly payments will depend on your loan’s interest rate and the term length.

Making a larger down payment can have several benefits. First, it can lower your monthly payment and the overall cost of ownership.

Additionally, closing costs usually fall between 2-5% of the total purchase price. These fees include loan origination, appraisal services, and title insurance.

You’ll also need to factor in the ongoing costs of ownership, such as property taxes, insurance, and repairs and maintenance. But, again, these costs can vary depending on the type of home you purchase and where it’s located.

Before shopping for a home, you must have a realistic idea of what you can afford. It includes not just the down payment but also the closing costs and the ongoing ownership costs.

With careful planning and due diligence, purchasing a home can be a rewarding experience. However, starting the process is essential by saving up for a down payment and getting pre-approved for a mortgage.

Advantages of A Higher Down Payment

You should make a higher down payment on a home for several reasons. The most obvious reason is that it will help you to avoid paying private mortgage insurance (PMI).

The cost of PMI varies, but it can add hundreds of dollars to your monthly mortgage payment. By making a higher down payment, you can avoid this added expense.

Another advantage of a higher down payment is that it will help you build home equity more quickly. Equity is the portion of your home’s value that you own outright.

It increases as you pay your mortgage and your home’s market value increases. More equity in your home makes it easier to sell the property before the mortgage is paid off.

A higher down payment can also help generates smaller monthly mortgage payment. The amount you borrowed will directly impact your interest rate and the size of your monthly payments.

If you want to keep your payments as low as possible, making a larger down payment is one way.

The Minimum Down Payment Required

The median down payment among first-time buyers was 10%, and for repeat buyers, it was 14%. So it means that half of all buyers paid more than 10% down, and half paid less.

The NAR also found that the average down payment on a purchase loan was 12%. So if you’re planning to buy a home, you’ll need to save up at least 12% of the purchase price for your down payment.

Keep in mind that this is just the average. Depending on your specific circumstances, you may need to save more money, or you may be able to get away with saving less.

For example, if you’re a first-time buyer with good credit, A mortgage can be yours with as little as 3% down. On the other hand, if you’re planning to buy a luxury home, you may need to save up to 20% or more for your down payment.

Ways To Get A Dream Home With Less Than 20 Percent Downpayment.

While it’s generally a good idea to put down as much as you can afford, there are ways to buy a home with less than 20% downpayment.

You can get a conventional loan with private mortgage insurance (PMI).

You can still get a conventional loan if you cannot put 20% down on a home. However, you’ll need to pay private mortgage insurance (PMI) until you have 20% equity in the home.

PMI is an insurance policy for the lender if you can’t make your loan payments on top of your mortgage and property taxes. The cost of PMI varies, but it can add hundreds of dollars to your monthly mortgage payment.

You can get rid of PMI once you’ve built up 20% equity in the home. You can achieve this goal by making extra payments on your mortgage or waiting for your home’s value to increase.

With this type of loan, you’ll be able to make a smaller down payment.

Get An FHA loan.

An FHA loan may be the right choice if your credit score is low or a first-time homebuyer. These loans are backed by the Federal Housing Administration, which means that they typically require smaller down payments than conventional loans.

You can put up as little as 3.5% with an FHA loan. Then, of course, you’ll need to pay mortgage insurance, but you can get rid of it once you’ve built up 20% equity in your home.

Although you will be required to purchase mortgage insurance, an FHA loan only requires a down payment of 3.5%.

Get A VA loan.

You could qualify for a VA loan if you’re a veteran or active-duty service member. A VA loan entitles you to not pay for private mortgage insurance and buy a home with as little as 0% down.

Regardless of your choice, remember that you’ll need to budget for other costs, such as closing costs, repairs, and furnishings. So if you cannot come up with a 20% down payment, don’t despair.

There are ways to buy a home with less money down. Just be sure to budget for all the other associated costs so you can make an informed decision.

Down Payment Assistance Program

You may be eligible for a down payment assistance program if you’re a first-time homebuyer. These programs can help cover some of the costs associated with a down payment and closing costs.

State or local housing finance agencies usually administer down payment assistance programs. You can check with your state housing finance agency to see if any programs are available.

You may also be eligible for a down payment assistance program if you’re a veteran. The Veterans Administration offers a program called the VA Home Loan Guaranty Program.

Under this program, You can finance your entire purchase without a down payment and no private mortgage insurance. However, if you need help to come up with a 20% down payment, there are still options available to you. Several loan programs allow for smaller down payments.

Talk to a loan officer to find out which option is best for you.

Generally

The 20% down payment myth is just that, a myth. You don’t need to put down 20% to buy a home. Several loan programs allow you to buy a home with less money down.

Just be sure to budget for all the other associated costs so you can make an informed decision. If you cannot come up with a 20% down payment, don’t despair.

There are ways to buy a home with less money down. Just be sure to budget for all the other associated costs so you can make an informed decision.

So, if you’re considering buying a home, keep the down payment from dissuading you. Several loan programs can help you buy a home with less money down.

Do your research and talk to a loan officer to find out which option is best for you.

FAQ’s

Do I need perfect credit to qualify for a loan?

No, you don’t need perfect credit to qualify for a loan. However, if you have a high credit score, there is a greater chance you will be approved for a loan with lower interest rates.

Consider an FHA loan if you have a low credit score. FHA loans are federal mortgages insured by the Federal Housing Administration, allowing for smaller down payments than conventional loans.

Why do so many people believe the myth that you need 20% down?

There are a few reasons why people believe you need a 20 percent down payment to purchase a home. One reason is that it used to be true.

Conventional wisdom used to say that you needed 20% down to get a loan. However, this is no longer the case.

There are now several loan programs that allow for smaller down payments. Another reason people believe the myth is that they think it will save them money.

While it’s true that you’ll need to pay for mortgage insurance if you don’t have 20% to put down, this doesn’t mean you’ll necessarily save money by putting down a larger down payment.

How do I get rid of mortgage insurance?

If you have a Conventional loan, once the loan is paid down to 80% of the home’s value, you can get it removed. For FHA Loans, it is fixed to the loan for a period of 11 years. Most homeowners refinance the loan as property values increase fast enough that the cost of the refinance greatly outweighs waiting for it to fall off. Always speak to a Licensed Mortgage Professional for more information and guidance.

Can I use a credit card instead of cash for a down payment?

No, you can’t. A credit card would be considered “borrowed” funds, which do not qualify. The best course of action is to pay down all credit cards before starting the process. This can give you the highest chance of a increased credit score, giving you more options to consider.