Posted November 23, 2022 in Blog / Education

The 20% Down Myth

A recent nationwide survey revealed a staggering statistic. 77% of first-time homebuyers believe that you need a 20% down payment to purchase a home. When I learned of this I was in complete shock. This has been a requirement to purchase a home for several decades. How could someone have this belief with all of today’s resources and information at their fingertips? I mean, all you need to do is google how much do I need for a down payment…right? Wrong. 

Unfortunately, an experimental google search uncovered why many people are coming to this conclusion. My google search populated some paid ads but near the top I found this information by one of the largest mortgage companies in the U.S.   

“A 20% down payment is widely considered the ideal down payment amount for most loan types and lenders. If you’re able to put 20% down on your home, you’ll reap a few key benefits.” Oct 25, 2022

Here is the disconnect. When a homebuyer is borrowing more than conforming loan limits (currently $647,200) they will be using non-conforming/jumbo financing. In many cases, a 20% down payment will make the approval process less restrictive with less credit requirements. Now consider where the mass of U.S. residents live and buy homes. It is along near the east and west coast where property values are the highest in the nation. It’s very common for buyers to utilize non-conforming/jumbo loans, hence, the verbiage found in the search. 

The truth of the matter is a 20% down payment is not required. Most first-time homebuyers can buy their first home with 0-5% down depending on the product and program. There are some subsidized programs that will even borrow the down payment funds at 0% interest rate along with a possibility of forgiveness. Keep in mind these down payment programs will come with a higher fixed interest rate on your first mortgage so coming with a little of your own dough can sweeten your terms. 

The best way to learn your options is to contact your Fairway Heartland mortgage lender. We are experts in knowing the programs that will help you make the best financial decision.