Is the idea of saving for a down payment holding you back from buying a home right now? You may be eager to take advantage of todayâ€™s low mortgage rates, but the thought of needing a large down payment might make you want to pump the brakes. Today, thereâ€™s still a common myth that you have to come up with 20% of the total sale price for your down payment. This means people who could buy a home may be putting their plans on hold because they donâ€™t have that much saved yet. The reality is, whether youâ€™re looking for your first home or youâ€™ve purchased one before, you most likely donâ€™t need to put 20% down. Hereâ€™s why.
According to Freddie Mac:
â€œThe most damaging down payment mythâ€”since it stops the homebuying process before it can startâ€”is the belief that 20% is necessary.â€
If saving that much money sounds daunting, potential homebuyers might give up on the dream of homeownership before they even begin â€“ but they donâ€™t have to.
Data in the 2020 Profile of Home Buyers and Sellers from the National Association of Realtors (NAR) indicates that the median down payment actually hasnâ€™t been over 20% since 2005, and even then, that was for repeat buyers, not first-time homebuyers. As the image below shows, todayâ€™s median down payment is clearly less than 20%.
As we can see, the median down payment was lowest for first-time buyers with the 2020 percentage coming in at 7%. If youâ€™re a first-time buyer and putting down 7% still seems high, understand that there are programs that allow qualified buyers to purchase a home with a down payment as low as 3.5%. There are even options like VA loans and USDA loans with no down payment requirements for qualified applicants.
Itâ€™s important for potential homebuyers (whether theyâ€™re repeat or first-time buyers) to know they likely donâ€™t need to put down 20% of the purchase price, but they do need to do their homework to understand the options available. Be sure to work with trusted professionals from the start to learn what you may qualify for in the homebuying process.
Donâ€™t let down payment myths keep you from hitting your homeownership goals. If youâ€™re hoping to buy a home this year, letâ€™s connect to review your options.