20% Down Payment: Is It Still Alive?
After deciding to buy a home and getting your credit in order, what’s next? You should speak with a loan officer to determine how much home you can afford. This will help give you a good picture of how much down payment you will need.
Why 20% Down Payment?
Like many first-time home buyers, you will often hear about a 20% mortgage down payment being the goal for which to reach.
However, the fact is, the 20% down payment is not required.
GMFS Mortgage offers loan programs that vary anywhere from 0% – 3% in down payment options.
The most important thing to keep in mind is that the 20% down payment is a benchmark. It is a goal for home buyers to try and reach. This ensures they have lower monthly payments, are 20% closer to owning their homes, and are a lower risk to lending institutions. However, this is not a requirement for home ownership.
More than 70% of non-cash, first-time home buyers — and 54% of all buyers — made down payments of less than 20% over the past five years, according to the National Association of Realtors.*
What You’re Missing:
According to NAR’s latest data, only 13% of adults 34 years of age and younger are aware they can buy a home with a down payment of 5% or less. The fact of the matter is, the programs that allow for low down payments are not new programs. Most have been around since the 1980’s & 1990’s.
So, why don’t home buyers know this information? The traditional conventional loan is the loan that is most often used to quote mortgage rates. This is the loan that assumes a 20% down payment. Also, many banking institutions only work with the 20% conventional loans.
Without doing proper research or searching for different lending institutions outside of banking, you may not be aware of all the home loan options available.
Typical Down Payment Options:
Conventional Loans are the loans mortgage lenders prefer to make and can have down payments as low as 3% for qualified buyers. Some lenders offer grants to allow even lower money down. But for the past 12 months, most buyers seeking conventional financing put down 20%, according to Ellie Mae.
FHA Loans often the go-to solution for first-time buyers of modest means, require a minimum of 3.5% down, and sure enough, loan-to-values for the period averaged 96%, probably due to rounding.
VA Loans are famous for offering mortgages that require no down payment at all. Still, LTVs averaged 98% over the past year, likely due to borrowers financing their closing costs.
20% Down Payment: Yes or No?
While it is not a requirement, it is still a good idea.
Good reasons to put down at least 20% include:
- You won’t have to pay for mortgage insurance
- Your monthly payment will be lower
- You’ll likely earn a lower mortgage interest rate
- Lenders will be more likely to compete for your business
The fact is, you should try to save and put down as much as you can on a home without draining your savings account. No matter how much you are able to put down, be sure to have some money set aside for closing costs, homeowners insurance, property taxes, and any expenses that may come up after you move in.
The best way to be prepared for buying a home is to speak with a mortgage professional. A GMFS Mortgage Loan Officer will be able to guide you through the correct steps of buying a home. In addition, he/she will be able to help determine what loan options are best for you and how much down payment is required. Get Started with GMFS Mortgage