Reality Check: How Much Do You Really Need for a Down Payment?

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Getting a mortgage requires you to convince people you’ve never met to loan you hundreds of thousands of dollars. In order to make them comfortable enough to do that, you’ve got to show that you have some skin in the game yourself. 

That’s your down payment. 

Find Out: What You Need To Do Now To Buy a Home in 1 Year, 2 Years or 5 Years
See: 5 Common Misconceptions Millennials Have About the Costs of Homeownership

There’s a lot of misinformation about down payments — no, you don’t always need 20% — a fact that was revealed by a recent GOBankingRates survey. The poll, which quizzed 500 renters and 500 homeowners, shows that renters see saving for a down payment as their greatest barrier to homeownership. But it also shows that sometimes, those barriers are more imagined than real.

See: Real Estate Investing Gurus Mindy Jensen & Liz Faircloth: How Women Can Cash In on the Booming Housing Market 

Renters Want To Own — and Many of Them Can

The vast majority of renters surveyed, 78%, said they wanted to own a home. Mostly they’re optimistic. About half think they’ll be able to do it within a year or two. Only about 1 in 10 think they’ll never be able to own a home. 

Building Wealth

More than 1 in 4 renters, 27.2%, see saving for a down payment as the biggest obstacle to homeownership. In fact, if they were gifted $50,000, the largest plurality of renters, 43.4%, would put it toward a down payment

But those apprehensions are not always a reflection of the realities on the ground. The survey revealed that almost half of the homeowners asked put less than 20% down on their houses and nearly 1 in 3 put less than 10% down. 

Be Prepared: Are We in a Housing Bubble?

It’s true that renters aren’t saving enough. More than 70% of renters surveyed have less than $10,000 saved for a down payment and more than 1 in 3 surveyed have nothing saved at all. Even so, those who are saving might not have to save as much as they think. 

Most People Don’t Put Anywhere Near 20% Down

Overall, the median homebuyer puts down 12%, according to a 2020 report from the National Association of Realtors. For first-time homebuyers, it’s just 7% — and even that is up from 6% the year before. According to Zillow, the typical home in the United States is now $293,349 — a huge 15% increase on the year thanks to a red-hot housing market. Presuming you put 7% down, that’s a down payment of just $20,534 — a whole lot better than $58,670, which is what you’d need to put 20% down on the same house.

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But you might not even have to put that much down. According to The Mortgage Reports, the following common types of loans come with these minimum down payment requirements.

  • Conventional mortgages: 3%-5% down
  • FHA loans: 3.5% down
  • VA loans and USDA loans: 0% down
  • Jumbo loans: 10%-20% down

See: 17 Dumb Home-Buying Mistakes That Hurt Your Wallet
Check Out:
This Is the Salary You Need To Afford the Average Home in Your State

Don’t Be Fooled — 20% Does Have Its Benefits

You don’t have to put down 20%, but if you can, there are a lot of upsides to showing your lender that kind of commitment.

The first benefit is the most obvious. The more money you put down, the less you borrow, the less you borrow, the lower your monthly payments. You’ll save money over the long term, as well, since less money financed equals less money paid in interest over the course of the loan. Also, your loan-to-value ratio will be lower, which could qualify you for a better interest rate.

Building Wealth

In most cases, borrowers who put down less than 20% will have to pay for private mortgage insurance (PMI). That means you pay the monthly premium for a policy that protects the lender. The rate you pay varies depending on your credit score. So if you can afford the 20% down payment, it’s worth it, but you do have options if you can’t manage it.

​​More From GOBankingRates

Last updated: July 26, 2021

Methodology: GOBankingRates surveyed 500 Americans aged 18 and older from across the country on May 10, 2021, asking six different questions: (1) Do you want to own a home at some point in the future?; (2) When do you believe you will be able to afford to own a home?; (3) If given $50,000 tomorrow how would you spend the newfound money?; (4) What is the greatest barrier that is preventing you from being able to own a home?; (5) How much do you currently have saved for a down payment on a home?; and (6) How much of your current monthly salary is going towards rent? (Select the closest figure). All respondents had to pass a screener question of: Do you currently Rent or Own your residence?, with an answer of “Rent”. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.

GOBankingRates surveyed 500 Americans aged 18 and older from across the country on May 10, 2021, asking six different questions: (1) At what age did you first become a homeowner?; (2) How much did you put towards your down payment?; (3) How much of your current monthly salary is going towards housing? (Select the closest figure); (4) If given $50,000 tomorrow how would you spend the new found money?; (5) Are you more likely to renovate your current home or buy a new home?; and (6) Have you re-financed your mortgage recently?. All respondents had to pass a screener question of: Do you currently Rent or Own your residence?, with an answer of “Own (including paying off mortgage)”. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.

About the Author

Andrew Lisa has been writing professionally since 2001. An award-winning writer, Andrew was formerly one of the youngest nationally distributed columnists for the largest newspaper syndicate in the country, the Gannett News Service. He worked as the business section editor for amNewYork, the most widely distributed newspaper in Manhattan, and worked as a copy editor for TheStreet.com, a financial publication in the heart of Wall Street's investment community in New York City.

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