DID YOU KNOW - A 20% Down Payment is Not Required to Buy a Home

DID YOU KNOW - A 20% Down Payment is Not Required to Buy a Home

Coming up with enough cash for a down payment is one of the most common struggles among first-time buyers. However, in most cases, you don’t need to put 20% down on a home – especially your first home! So how much do you need to put down? The answer is different for everyone. Your down payment depends on your lender, your mortgage type, and your financial situation.

What is a down payment? 

A down payment is the percentage of your home price that you will pay upfront. Your down payment represents the initial amount of equity—or ownership—that you will have in your home. For example, if you’re putting 20% down on a $200,000 home, then your down payment would be $40,000. Fortunately, many loan programs allow you to put much less than 20% down on a home.

So, what’s the reality?

In 2022*:
  • 66% of all home buyers put less than 20% down on their home purchase.
  • 17% of all home buyers put 1-5% down.
  • 10% of all home buyers put zero down.
  • The typical down payment for first-time buyers was 6%
We offer loan options with low down payment requirements for qualified buyers!
  • Conventional loans are the most popular type of mortgage and are great for buyers with good credit. They are not backed by the government and are instead insured by private lenders. Our conventional loans start at 3% down. This amount may increase depending on your home’s purchase price, your credit score and more.
  • FHA loans are backed by the Federal Housing Administration and have flexible credit qualifications, making them a great option for first-time buyers. FHA loans start at 3.5% down.
  • USDA loans are backed by the U.S. Department of Agriculture and are for rural and suburban home buyers. USDA loans start at 0% down.
  • VA loans are backed by the U.S. Department of Veteran Affairs and are for qualified current, retired, and reservist military members, as well as some surviving spouses. VA loans start at 0% down. 
While these loan programs may not always require a 20% down payment, you will be required to pay private mortgage insurance if you put less than 20% down—unless you are using a VA Loan. The private mortgage insurance will protect the lender on their investment in case you are not able to make your monthly payments, and in some cases can be removed once you reach a certain amount of equity in your home.

Easy ways to save for a down payment

If you’re aiming to save for a down payment, try using some of the following tricks:
  • Know how much you need - Find out what loan programs you can qualify for, and how much home you can afford by using the mortgage calculator.
  • Squirrel away - Create a monthly budget that sets aside a certain amount each month towards your down payment. A good way to do this is to set up direct deposit to automatically deposit part of your paycheck into a separate savings account.
  • Use your savings to your advantage - If you know it will be a few years before you’re ready to purchase a home, consider putting your savings into a certificate of deposit. By doing so, you agree to hold your money in the bank for a fixed amount of time. In exchange, you’ll receive a higher interest rate than usual checking and savings accounts.
  • Ask family - It’s perfectly legal for individuals to help contribute toward your down payment. However, there are a few guidelines when it comes to receiving these gift funds. Ask your loan officer for more details.
  • Cut your rent payments - Add a roommate to split costs. If your current apartment is eating up most of your paycheck, think twice about renewing your lease.
  • Add to your income - Work extra hours at the office, take out a second job or freelance your talents to add some extra income. Put this money into your down payment savings.
  • Set aside extra income - Consider putting all unexpected income, such as tax returns, gift money and bonuses into your down payment fund. You’ll thank yourself later.
  • Shop around - When was the last time that you shopped around for car insurance, cable, internet or your cell phone plan? You could save hundreds by downsizing or renegotiating some of these contracts.
  • Set realistic goals and track progress - In order to not be overwhelmed or discouraged, set incremental goals to measure your progress. When you meet your goals, reward yourself with a small prize such as a manicure or happy hour with friends.
Still need help? 

You could be eligible for down payment and closing costs assistance programs in your area! Down payment assistance is a financing program that helps potential buyers achieve homeownership by providing them with funds for a down payment or closing costs. Most commonly, down payment assistance programs are funded by the state or local government, or a nonprofit organization, in an effort to help home buyers that might otherwise be shut out of the housing market. These programs were designed to help bridge the gap and help more people achieve homeownership.

Ask your loan officer  to provide you with more thorough information on the local programs in your area and help determine if you’re able to qualify. Even if you have enough money for a down payment, you can still ask if you might be able to take advantage of these programs.

*Sources: NAR 2022 Home Buyers and Sellers Generational Trends and 2022 Profile of Home Buyers and Sellers.

The information contained herein (including but not limited to any description of the Advertised Mortgage Company, its affiliates and its lending programs and products, eligibility criteria, interest rates, fees, and all other loan terms) is subject to change without notice. This is not a commitment to lend.