Insights

By Jamie Hermann 07/09/2020

New homeowners likely will hear “20 percent” more than once when talking with friends and family about down payments. And many will walk away thinking that’s the magic number—the must-have if you want to buy a house. But how accurate is that?

Let’s start by noting that putting down 20 percent of the house purchase price does provide a few advantages. You’ll most likely be able to avoid private mortgage insurance, or PMI, which is attached to many loans and protects lenders in case buyers don’t make their payments. Your mortgage payment also will be lower if you have a higher down payment, and you may receive a lower interest rate if you have 20 percent down.

But you definitely do not need a down payment of 20 percent.

In fact, the National Association of Realtors found that, on average, first-time homeowners have a down payment of just 6 percent. And often, you can get into a new home with as little as 3 percent down, depending on your mortgage type.

Finding help

For first-time homebuyers, there’s a variety of down-payment assistance options available, if your income qualifies. And many first-time homeowners—including younger entry-level professionals and those who have been long-time renters—fall into that category.

Each of the assistance programs has distinct requirements, and you’ll find different programs in different states. But in most cases, if you have at least $1,000 of your own money to contribute to the down payment for your first home, you can receive up to $8,000 in assistance. That’s money that doesn’t have to be paid back as long as you live in that house for at least five years, too.

And with some types of mortgages, you can even receive 100 percent financing, which means you don’t even need a down payment.

Know what’s best for you

Every buyer is unique, and each has different budget needs and financial goals. That’s why it’s important to talk with a trustworthy mortgage lender, who can help discuss your options and how they fit into your current and future plans. There is no one-size-fits-all answer, and mortgage choices can seem almost endless, but a good mortgage lender can answer all your questions and help you navigate into your dream home.