Following the five second rule. Drowning in quicksand. Needing 20% down to buy a house.
What do these all have in common? They’re myths, and ones that have been definitively debunked.
Right now, we’re most concerned with the last one (although thank goodness we don’t have to worry about quicksand).
Many people believe a 20% down payment on a house is a must, just as many people also believed shoulder pads were a smart fashion choice in the 80’s. Between new loan programs and developing homebuying trends, the norm has officially changed.
But don’t take it from us. The data speaks for itself.
A recent survey from the National Association of Realtors uncovered just how widespread this misunderstanding is. Of people who have never owned a home:
- 39% think they need more than 20% down
- 26% think they need to put 15-20% down
- 22% think they need to put 10-14% down
That’s what people think. But reality tells a much different story.
In 2016, the average down payment on a house was just 11% among all buyers. And the number dips even lower for buyers under 35, who put just 8% down on average.
This data aligns with a trend in homebuying that has been developing over the past few decades. Average down payments have fallen for repeat homebuyers across the board. For people who have bought previously, the median down payment currently sits around 14%; in 1989, that number was closer to 23%.
There are big benefits to a sub-20% down payment.
We’re guessing you’re thinking to yourself, “Doesn’t a small down payment mean a larger monthly payment and mortgage insurance?”
Well, sure. But that’s not the whole story.
Here are some quick hit reasons why buying a home with less than 20% down could make sense for you:
- Free up funds – Whether for an emergency, retirement, or paying for school, a smaller down payment means more immediate money in your pocket that could be used for other important expenses.
- Invest in your property – In addition to freeing up funds for important expenses, this extra money in your pocket could be used to renovate your new home.
- Get ahead of rising home prices – Average home prices continue to rise. Buying earlier might safeguard you from overspending for a home, especially while rates continue to sit near historic lows.
It’s ultimately up to you. But getting into the housing market sooner with a smaller down payment may not be the disadvantage you think it is. Fortunately, there are several loans and programs that can help make it possible.
Here are 5 mortgages that don’t require 20% down.
Here’s the deal: A traditional 30-year fixed rate mortgage is just one option you have to finance a home.
There are other programs out there with special terms allowing for smaller down payments and other leniencies for credit and more. Check out the skinny on some of your choices:
- HomeReady – Made for low-to-moderate income buyers, this program offers access to 97% LTV financing.
- Home Possible – Similar to HomeReady, this program offers access to 95% LTV financing and flexible funding.
- FHA 203B Program – This loan allows for less-than-perfect credit with a down payment as low as 3%.
- USDA Rural Development Guaranteed Housing Loan Program – A lesser known program, this loan offers up to 100% financing for people living in eligible rural and suburban areas.
- VA Loan – Made specifically for veterans, this loan allows for a down payment as low as 0%.
This is just a quick rundown. But long story short, the next time someone asks how much down payment you need for a house, you now know that the 20% down rule is a big, fat myth. Learn more about your specific loan options here.