Get the Down-Low on Down Payments!
A home mortgage is the biggest financial investment you’ll make in your lifetime, so it’s not surprising that saving for a down payment can be a major hurdle for people on their journey to home ownership. While a 20 percent down payment is considered ideal, it’s not actually as common as you might think, nor is it a necessity to buying a home.
Down Payment Stats Over the Years
While 2020 buyer data is still being calculated, Zillow studies show that a large majority of buyers put down less than 20 percent on their new home with 52% in 2018 and 56% in 2019. Additionally in 2019, the National Association of Realtors found that the average down payment on a house or condo was just 12%. For first-time home buyers, that number drops even lower to 6%.
When you break the stats down by age group in 2019, younger buyers put down less than older buyers. 62% of Gen Z and Millennial home buyers put down a down payment of less than 20 percent when buying their current home in the United States, whereas only 42 percent of Boomers and Silent Generation buyers did the same.
Why 20 Percent is Considered Ideal
While not a necessity, a 20 percent down payment will provide buyers with quite a few benefits including avoiding private mortgage insurance (PMI), qualifying for a lower interest rate, and resulting in smaller monthly mortgage payments. Depending on where you’re looking to buy a home, a larger down payment can make you a more competitive buyer and stand out to the seller if inventory is low and there are multiple offers on the home you’re eyeing.
Loan Options for Low Down Payments
It’s important to know that you have a variety of down payment options. For qualifying buyers, lenders can offer mortgage options with 10% or 5% down if you’re willing to pay the monthly PMI cost. You can even skip the conventional loan and go for a Federal Housing Administration or FHA loan with only 3.5% down if you qualify. If you choose to buy in a more rural area, you might be eligible for a USDA loan, which requires no down payment. And if you have served in the military, you have a 0% down payment option with a VA loan.
Plenty of myths and misconceptions about down payments as well as the whole mortgage process exist in the mortgage industry. Knowing your options and your financial situation will give you a good start in deciding how much money to put down. Finding a knowledgeable Loan Officer helps, too! If you are looking at buying, contact us today and we will get you moving on your home ownership journey!
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