MYTH - I need to put 20% down

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.

  1. Conventional loans -- Guaranteed by the federal government. Down payments as low as 3% for qualified buyers. Some lenders offer assistance grants.

  2. FHA loans -- Backed by the Federal Housing Administration. Require a minimum 3.5% down. Allow lower minimum credit scores than conventional loans.

  3. VA loans -- For military service members and veterans. Backed by U.S. Department of Veterans Affairs. No down payment required.

  4. 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:

  1. You won’t have to pay for mortgage insurance.

  2. Your monthly payment will be lower.

  3. You’ll likely earn a lower mortgage interest rate.

  4. 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:

  1. Your financial situation.

  2. How long you plan on living in the home.

  3. The housing market in your area.

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