Homeownership Made Simple — Episode 8

How Much Down Payment Do You Really Need to Buy a Home?

One of the most persistent home-buying myths is that you need 20% down before you can purchase a home.

That belief causes some buyers to wait for years unnecessarily.

Putting 20% down can have advantages, particularly with a conventional mortgage, but it is not a universal requirement. Depending on the buyer, property and loan program, the required down payment could be considerably lower — and some qualified buyers may have zero-down options.

Here are some of the biggest down-payment myths worth clearing up before you decide whether you're ready to buy.

Myth #1: You Need 20% Down to Buy a Home

You don't.

Twenty percent became a familiar benchmark partly because conventional borrowers who put less than 20% down will typically have mortgage insurance. But mortgage insurance is what allows many buyers to purchase without waiting until they have accumulated a 20% down payment.

Some conventional mortgage programs allow qualified buyers to put down as little as 3%. Freddie Mac's Home Possible program, for example, offers down payments as low as 3% for borrowers who meet its requirements.

That means a buyer considering a $350,000 home shouldn't automatically assume they need to save $70,000 before talking to a lender.

Myth #2: FHA Loans Require a Large Down Payment

FHA financing was designed in part to make homeownership accessible to buyers who may not have large amounts of cash available upfront.

For qualified borrowers, an FHA-insured mortgage can require a down payment as low as 3.5%.

FHA loans also allow certain acceptable sources of down-payment funds, including gifts and some assistance programs.

That can make FHA worth comparing with conventional financing rather than assuming one loan type is automatically better.

Myth #3: Zero-Down Home Loans Don't Really Exist

They do — although eligibility requirements apply.

Eligible borrowers using a VA-backed purchase loan can often purchase without a down payment, provided the sales price doesn't exceed the appraised value and other VA and lender requirements are satisfied. VA loans also generally do not require monthly private mortgage insurance.

The USDA Single Family Housing Guaranteed Loan Program can also provide 100% financing for eligible buyers purchasing qualifying properties in eligible areas.

These programs aren't available to everyone, but they are exactly why buyers should investigate financing before deciding they don't have enough money to purchase.

Myth #4: Your Down Payment Is All the Cash You'll Need

This is an important one.

Your down payment and your cash needed to close are not the same thing.

A home purchase can also involve lender charges, appraisal costs, title-related expenses, prepaid insurance, property-tax escrows and other closing expenses. The Consumer Financial Protection Bureau notes that closing costs commonly fall around 2% to 5% of the purchase price, separate from the down payment, although actual costs vary considerably by transaction.

There may also be inspection expenses and other costs associated with purchasing and moving into a home.

A good lender should help you estimate the total cash needed, not simply quote a down-payment percentage.

Myth #5: Putting More Money Down Is Always Better

A larger down payment can certainly have benefits.

It may reduce the amount you borrow, lower your monthly principal-and-interest payment and potentially reduce or eliminate mortgage insurance.

But putting every available dollar into the down payment isn't necessarily the best strategy for every buyer.

You may also need cash for moving expenses, repairs, furnishings and an emergency reserve after you become a homeowner. The CFPB specifically recommends considering these expenses and maintaining an appropriate financial cushion when deciding how much cash to put toward a home.

The better question isn't:

“What's the largest down payment I can possibly make?”

It's:

“What combination of down payment, monthly payment and remaining savings makes the most sense for me?”

The Number That Matters Is Your Number

There is no single correct down payment for every home buyer.

One person may decide that putting 20% down makes sense.

Another may purchase with 10%.

Another may qualify for 3% or 3.5%.

An eligible VA or USDA buyer might purchase with no down payment at all.

Your income, credit profile, available savings, property, loan program and long-term plans all influence the answer.

That's why one of the best first steps in buying a home isn't trying to hit an arbitrary savings goal.

It's finding out what your actual options are.

Ready to Find Out What Buying Could Look Like for You?

Before you spend another year saving toward a number you may not actually need, talk with a qualified mortgage professional about your financing options.

Tu Familia Real Estate can also help you understand Northeast Florida home prices, compare communities and coordinate your home search with your financing strategy.

Explore Your Financing Options