The need to come up with a 20% down payment is often enough to keep buyers out of the market. I am here to tell you that "the 20% down payment" is dead.
The average down payment on a house
20% is a convenient benchmark used for decades. But taking a deeper look at the average, outliers clearly skew what buyers actually put down.
Let's remove all-cash buyers from the equation. Buyers who financed the purchase in one way or another had a median down payment of just 7% (National Association of Realtors). The median down payment for repeat buyers who financed was 16%.
Minimum down payment on a house
Let's take a look at some of the predominant loan types out there.
Conventional loans -- Guaranteed by the federal government. Down payments as low as 3% for qualified buyers. Some lenders offer assistance grants.
FHA loans -- Backed by the Federal Housing Administration. Require a minimum 3.5% down. Allow lower minimum credit scores than conventional loans.
VA loans -- For military service members and veterans. Backed by U.S. Department of Veterans Affairs. No down payment required.
USDA loans -- For certain rural and suburban buyers. No down payment. Guaranteed by the U.S. Department of Agriculture.
Is it better to put down 20%?
Although 20% down payments aren’t strictly required, they may be a good idea. Good reasons to put down at least 20% include:
You won’t have to pay for mortgage insurance.
Your monthly payment will be lower.
You’ll likely earn a lower mortgage interest rate.
Lenders will be more likely to compete for your business.
The upfront premium is 1.75% of the loan amount, and the annual premium ranges from 0.45% to 1.05% of the average outstanding balance of the loan for that year.
For a $500,000 mortgage, this equates to $8,750 upfront with annual premiums around $3,000 to $5,000 until your equity reaches 20%.
20% loans are often deemed "safer" and can be more attractive to banks.
How much should a first-time buyer put down?
The short answer? It depends. Think about:
Your financial situation.
How long you plan on living in the home.
The housing market in your area.