Do You Need to Put 20 Percent Down?

Posted on Tuesday, November 8, 2022

You’ve probably heard it most of your life. To buy a home you need to put 20 percent of the purchase price down. That may have been true once, but not now. Today you may qualify to put as little as 3 percent down. You might even qualify to put no money down. How? We break it down for you.

Do Most People Put 20 Percent Down?

According to the National Association of Realtors, the average down payment is 12 percent. First-time buyers average 7 percent down. The average down payment for repeat buyers is 16 percent. In other words, the average home buyer is not putting 20 percent down.

Benefits of Making Lower Down Payment

With a smaller down payment, you may be able to purchase a new home faster. To put 20 percent down on a $300,000 home, you would need to save up $60,000. Ouch. If you qualify to put 3 percent down, you only need $9,000. A smaller down payment can give you a cushion against other expenses.

Certain Loans Require Smaller Down Payments

If you qualify for certain loans, you won’t have to put 20 percent down. You might not have to put any money down at all. These loans are usually backed by the federal government. That means if you default, the lender is still protected. Most of these loans have conditions attached, but the money you save is worth it.

FHA loans are government-backed and require you to put at least 3.5 percent down. To obtain this type of loan, you will need a minimum credit score of 580. It is possible to get an FHA loan with a credit score between 500 and 579 but you will be required to put at least 10 percent down.

Veterans do not need a down payment to qualify for VA loans. There are service requirements, however, and veterans should check with the Department of Veterans Affairs to see if they qualify. Spouses of active-duty military or veterans who have died in service or have a service-related disability also may be eligible.

Homebuyers who have not served can get a USDA loan that will relieve you of having to put money down. To qualify, your home must be in an approved rural or suburban area. Members of your household will need to meet income requirements, as well.

Conventional loans are offered by lenders at higher interest rates. Lenders have different requirements and set their own percentages, but it is possible to get a loan that allows you to put anywhere from 3 to 5 percent down. If you have a credit score above 620 points, you are more likely to get a better loan percentage.

What About Community Seconds?

A “Community Seconds,” loan from Fannie Mae or “Affordable Seconds” loan from Freddie Mac can help you purchase a loan without a down payment if you qualify. These loans are essentially second mortgages that cover the cost of your down payment. Their purpose is to make affordable housing more accessible. To qualify, you must meet certain requirements. You can find out more here.

The Bottom Line

 The bottom line is that you can qualify to purchase a home in Balmoral for less than you thought. Talk with a Realtor and your lender. You could be living the lagoon life before you know it.



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