You Don’t Need 20% Down

Fact: The more money you can put down, the lower your monthly payment will be. This is partly because of basic math (a smaller loan divided over years), but putting more down may help you qualify for a lower interest rate.

Fiction: It’s a very common misconception that you aren’t ready to buy a home until you have saved at least 20% of the home’s price as a down payment. I believed this and waited and saved up a HUGE chunk of change, but this just is not true!

There are tons of loans out there specifically to allow buyers to put down less money up front. Here are a few:

• VA loans for veterans have no PMI and require 0% down

• Physician loans require 0% down

• FHA loans only require 3.5% down

• Conventional loans can begin as low as 3% down, and 5% down is incredibly common

Buyers who take advantage of low down payment programs often have to pay Private Mortgage Insurance (PMI), to help the bank cover the risk of the loan, but for many, that fee is worth achieving home ownership years faster than they could otherwise if they had to save up to four times as much.

If you’re worried about how long it will take to save for a down payment, there are also many different new buyer programs out there to help with down payment assistance. A good lender can help you figure out which programs you can qualify for, and eligible buyers are often able to use funds from multiple programs at the same time.

In addition to your down payment, don’t forget closing costs and reserves! Closing costs vary, but about 2% of the loan is a good estimate. Different loans also require different amounts of reserves, typically from 0 to 6 months of mortgage payments that a buyer has saved just in case.