October 19, 2017

The 20% Down Myth

“How much money do I need for a down payment to buy a house?”  I usually answer that question by asking two questions of my own. (Don’t you just hate it when we do that?)

First, “How much do you have saved right now?”

Second, “What is a comfortable payment for you?”

(Notice I didn’t ask, “what is the maximum payment you can afford?”, but rather “what is comfortable?”. In the end you need to be financially comfortable with your monthly mortgage payment.  I never encourage anyone to push their payment to the maximum amount they qualify for.)

Each buyers individual financial situation is unique, therefore there isn’t any one right or wrong answer.

The answers to my two questions above are going to be monumentally important to me as your mortgage advisor.  They will give me a small glimpse into your expectations for this whole process and they will tell me how much research you’ve done on your own. Those answers may also tell me that you are already in a position to start looking for and making offers on the home of your dreams. (Assuming of course that I have approved your credit and verified your income.)

You see, there is a myth going around that you need 20% down to buy a home, and that is simply not true for most of the situations I encounter.  I have heard it from real estate agents, buyers, and anyone and everyone that wants to blabber to me about how hard it is to get a home loan these days.

I’ve got to tell you, I have no idea who is disseminating this false information, but it’s just flat out inaccurate.

Sure there are certain situations where a 20% down payment is the way to go, and  sometimes there are situations where even more than 20% is the way to go, but not for everyone, not for every situation. Just this month I helped a couple purchase a home, and we gave them a 30 year fixed “conventional” mortgage after only a 5% down payment of their purchase price.  They even had the option of paying their mortgage insurance out in one single discounted payment so they could have a lower monthly payment without the monthly PMI.  Best of all, we were well below their maximum debt ratio.

The truth is there are several options when it comes to down payment requirements, many of them much less than the 20% myth.


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