Do I Really Need a 20% Down Payment to Buy a Home?
Is the idea of saving for a down payment holding you back from buying a home right now?? You may very well want to jump on today’s low mortgage rates, but the thought of a large down payment might make you skiddish. Today, there’s still a common myth that you have to come up with 20% of the total sale price for your down payment. Therefore people may be putting their plans on hold because they don’t have that amount in savings. The reality is, whether you’re looking for your first home or you’ve purchased one before, you most likely don’t need to put 20% down. Here’s why.
According to Freddie Mac:
“The most damaging down payment myth—since it stops the homebuying process before it can start—is the belief that 20% is necessary.”
If saving that much money is overwhelming, potential homebuyers might give up on the dream of homeownership before they even begin – but they really don't need to.
Data in the 2020 Profile of Home Buyers and Sellers from the National Association of Realtors (NAR) indicates that the median down payment actually hasn’t been over 20% since 2005, and even then, that was for repeat buyers, not first-time homebuyers. As the image below that Keeping Current Matters shows, today’s median down payment is clearly less than 20%.
What does this mean for potential homebuyers?
As the graph shows, the median down payment was lowest for first-time buyers with the 2020 percentage coming in at 7%. If you’re a first-time buyer and putting down 7% still seems high, please understand that there are programs that allow qualified buyers to purchase a home with a down payment as low as 3.5%. There are even options like VA loans and USDA loans with no down payment requirements for qualified applicants.
It’s important for potential homebuyers (whether they’re repeat or first-time buyers) to know they likely don’t need to put down 20% of the purchase price, but some homework can be crucial for understanding all available options, along with the specifics. Be sure to work with trusted professionals from the start to learn what you may qualify for in the homebuying process.
Don’t let down payment myths keep you from homeownership! If you’re hoping to buy a home this year, contact a local real estate professional to review your options. We are more than happy to help in any way we can!
~Real Advantage Partners RE/MAX Precision team