Do You Really Need to Put 20% Down on a House?

A common belief when buying a home is that you need to have a 20% down payment. But is this still true today? Let’s explore what is happening in the current market.

Do You Need to Put 20% Down on a Home?

In short, no, you don’t need to put 20% down to buy a home. While it can have its perks, it’s not a strict requirement.

Most people think a 20% down payment is mandatory to buy a home. This comes from traditional lending practices where a 20% down payment lets you avoid private mortgage insurance (PMI). However, it’s not always necessary.

“Many loan programs allow for lower down payments, sometimes as low as 3% or even 0% for qualified buyers.  So, while 20% is typical for conventional loans, there are other options out there.

Home Loan Options

If you’re looking to buy a home, you’ve probably heard about various loan types. Federal Housing Administration (FHA) loans require as low as 3.5% down, while U.S. Department of Agriculture (USDA) and Department of Veteran Affairs (VA) loans offer 0% down for qualified buyers.

State and local governments often have first-time homebuyer programs. Speak with a qualified lender to see what loan programs are available and which is best for you.

Pros and Cons of a 20% Down Payment

Advantages:

Putting 20% down can help you avoid PMI, reduce your loan amount, and lower monthly payments. For example for a $300,000 home, a 20% down payment means a loan of $240,000, resulting in lower monthly payments compared to a smaller down payment.

Disadvantages:

A major downside is that it can deplete your cash reserves, leaving you less flexible for home repairs or emergencies.  It is highly recommended that you don’t deplete your savings entirely; keep some for unexpected expenses.

Final Thoughts

How much you decide to put down on a home depends on your financial situation. Consulting with your real estate agent and lender is the best way to navigate these options effectively. Need to find a quality lender? I can help with that.

Questions? Why Wait? Contact me today!