If you’re like a lot of house-hunters, you’ve probably heard that the magic number for a down payment is 20%. While it used to be fairly standard, 20% down isn’t the only option anymore—and it certainly isn’t common!
In reality, less than 30% of first-time homebuyers and 50% of repeat buyers made a down payment of at least 20% during the last five years.* Find out why people are making smaller down payments. And learn how they’re doing it!
Today’s homebuyers aren’t always able to save for a large down payment due to a variety of factors, including skyrocketing student debt. On average, 2017 college graduates left school with $39,400 in loans, up 6% from last year. But that doesn’t mean you’re out of luck! There are mortgages with low (or no) down payments and reasonable rates.
Starter Home Availability
We’re seeing significantly fewer starter homes on the market, which means that first-time homebuyers are purchasing larger or more expensive homes than previous first-time buyers did. The trend appears to be continuing with 2018 median list prices of starter homes being 10% higher than last year. What does this mean for you? If you have $15,000 available for a down payment, it will represent a smaller percentage of a more expensive house.
The Ultimate Gift
One untapped down payment resource is a financial gift. Some loan types allow homebuyers to use gift funds as a down payment. The money cannot be a loan, as that would then be considered part of the borrower’s debt load. A gift letter from the donor is required to verify that the funds do not need to be repaid.
In other cases, you may be in the early stages of a lucrative career. Attorneys, physicians and other high-income professionals know they can afford large monthly expenses, but may not want to drop a big chunk of change early in their careers. As your income increases, you can refinance to increase your equity or move up to a larger home.
Lifestyle and Preferences
If you love to travel, are planning to start a family, want to buy furniture for your new home or have other financial motivators, it’s important to consider how your down payment amount and your monthly mortgage will affect those important aspects of your life. Strive to find a balance that meets the majority of your goals. With countless financing options—and a team of experienced loan originators—we can show you how to make your dreams come true.
Cash Flow vs Cash in Bank
Choosing a home and mortgage is a very personal decision—and down payment size isn’t always a matter of what’s in your bank account. Some homebuyers prefer to make a larger down payment so they can avoid PMI and have a more manageable monthly payment. Others feel more comfortable keeping extra money in savings even though that will increase their mortgage payments and may require PMI.
Fortunately, we have a variety of options to make it possible to buy a home with the down payment approach that’s right for you.
This information is a general overview. Guidelines, restrictions, and qualifications apply and not all applicants will be able to qualify for all programs.
* Statistic from National Association of Realtors as quoted by nerdwallet.
- By Stephanie Clark ,
Sep 20, 2018