Do You Need a 20% Down Payment to Buy a House?
Find out how much you really need saved to buy a house.
If you’re starting the search for your new home, it’s easy to feel overwhelmed by all of the details. From understanding mortgage pre-approval to estimating property taxes to learning about home inspections, there are many steps between looking at a house and signing on the dotted line.
When you’re considering buying, one of the biggest—and most important—questions that often comes up is how to handle your down payment. While conventional wisdom says that you should put 20% of the final sale price down upfront, is that still really the case?
First-time buyers average a down payment of 6%.
Though 62% of Americans believe you need a 20% down payment to buy a house, in reality, first-time buyers on average put down only 6% of the asking price. Though some mortgage lenders may require a full 20% down payment, the most common loan types offer more attainable alternatives for buyers.
Different loan types require different down payments.
While almost every lender requires a down payment, different loans have different borrower requirements.
FHA loans, which are insured by the Federal Housing Administration, allow borrowers to put down as little as 3.5% as long as they meet certain credit requirements.
VA loans are available to service members and veterans looking to become homeowners. Often, they let buyers purchase with 0% down and don’t require private mortgage insurance.
Unlike FHA or VA loans, conventional loans aren’t backed by a government agency. These loans are available from most lenders and typically follow the down payment and income requirements determined by large lenders like Fannie Mae—often allowing down payments as low as 3%. If you put down less than 20%, however, most conventional loans require the addition of private mortgage insurance.
Weigh the pros and cons of a 20% down payment before you buy.
While most lenders don’t require the full 20% down payment that most people expect, paying that initial amount upfront often saves you in the long run. A larger down payment lowers your monthly mortgage payments and often secures a more competitive interest rate for the entire life of the loan. Similarly, a 20% down payment also helps you avoid private mortgage insurance, further cutting monthly costs and reducing your recurring expenses.
Smaller down payments, on the other hand, also have their advantages. By lessening the upfront financial burden, it gives first-time buyers added flexibility to purchase property with less in savings. Minimizing your down payment also helps to keep a financial safety net, allowing you to buffer for closing costs and post-move expenses like maintenance and renovations.
Though some buyers do put down the full 20% down payment, the approach to buying is shifting. If you’re house hunting, you shouldn’t feel constrained by outdated adages and should instead explore all of the financial options to find the best solution for you.
If you’re interested in building instead of buying, Atmos can help guide you through all of your financial decisions. By bringing together experts across industries, Atmos makes it easier than ever before to create the home of your dreams. Learn more to get started.
