When you start thinking about home buying, the first thing many people think is, “How will I raise the 20% down payment?”
Contrary to what you’ve heard, 20% down isn’t required. You have choices, even as low as 0%.
So that begs the question, “How much should I put down on a house?”
Average down payments are smaller than you think
The average first-time home buyer does not put 20% down, or anything close to it.
According to the National Association of Realtors, 61% of new buyers in 2017 made a down payment between zero and six percent of the home price.
Government-sponsored loan programs such as the USDA home loan and FHA mortgage allow for very small down payments, even if you don’t have stellar credit.
Today’s market is advantageous for anyone who has not yet saved up a large down payment.
Should you make a small down payment or a large one?
How much down payment you make depends on your situation and preferences.
For example, if you want the lowest payment possible and don’t like the idea of paying mortgage insurance, you’ll want to make a down payment of 20% or more.
But making a large down payment comes with risks. If you experience a loss of income and lose the home, you lose your down payment, too. By making a small down payment, you transfer much of the risk of homeownership to the lender.
Down payment vs monthly payment charts
The charts below are surprising. They show that a 25% down payment — a whopping $75,000 on a $300,000 loan — only saves $500 per month compared to a zero-down loan.
Most home buyers assume it’s in their best interest to make a large down payment. But the numbers might convince them otherwise. Draining your savings may not be your best option.
Get a pre-approval for a low- or high-down-payment loan.
Whether you choose to make a large down payment, a small one, or none at all, you’ll need a pre-approval from a lender to start your home search.
Click below to start the process. Many buyers can get a pre-approval in one day or less.
Check out our first article in this series: “What’s the first step to buying a home?”