Ask Eli: The Myth of the 20% Down Payment

This regularly sponsored question-and-answer column is written by Eli Tucker, Arlington-based real estate agent and Arlington resident. Please email your questions to him for a response in the next few columns. Video summaries of some articles are available on YouTube on the Ask Eli, Live With Jean playlist. Enjoy!

Question: Are there ways to buy a house without putting 20% ​​down?

Responnse: Hope everyone enjoys the holidays and free time!

Next month we’ll take the time to review how the market is performing in 2021, but this week I’m going to answer one of the most common questions I get: is it necessary to save 20% for a down payment in order to buy a house? Studies show that the most common reason people give for not buying a home is not having enough savings for a down payment.

About 1/3 of Arlington buyers buy a home on less than 20% down payment and for many buyers, especially first-time buyers, they put as little as 3-5% down.

Programs for everyone

For those with good credit, there are popular conventional loan programs that offer a reduction of only 3% and for those with a lower credit rating, FHA loan programs range from 3.5 to 10% less. There are also great 10-15% down payment programs available for those with good credit and good income that do not include mortgage insurance premiums.

Specialized programs for military and medical personnel

If you are an active duty member or former military member, you are probably familiar with VA loans that allow for zero down payment purchases. Doctors also have access to special loan programs that offer favorable rates with low down payments for large loan amounts.

Mortgage insurance

Many loans with less than 20% down payment will include mortgage insurance, which I discussed here. It will increase your monthly payment and is usually higher the less you put in. However, there are options to get rid of mortgage insurance costs by buying it back or requesting an early withdrawal after a few years.

There are also loan options that do not include mortgage insurance at all.

Impact on negotiations

Clients often ask me if a lower down payment will impact their ability to negotiate, so in 2018 I did an analysis on the subject. The results showed that only cash buyers (100% down payment) and buyers who did not put money down were materially impacted by their down payment, negotiating leverage was similar for everyone in between. .

However, it would be misleading to suggest that the down payment percentage has no effect. Most sellers will respond more enthusiastically to higher down payments, and this comes into play in competitive (multiple bidding) scenarios, which are common in Arlington and the surrounding areas of DC Metro. When sellers choose between several similar offers, buyers with higher down payments have an advantage.

Buyers can combat the potential negative impact of a lower down payment in several offer scenarios by obtaining a strong pre-approval letter from a reputable local lender, offering to be pre-approved by a lender of the country’s choice. seller, increasing the down payment, or several other adjustments to the contract which will be favorably considered by the seller.

Preferred mortgage programs

If you would like any additional information or recommendations on lenders or loan programs, please do not hesitate to contact me at [email protected].

If you would like to discuss buying, selling, investing or leasing, please do not hesitate to contact me at [email protected].

If you would like an answer to a question in my weekly column or to discuss buying, selling, renting or investing, please send an email to [email protected]. To read one of my old articles, visit the blog section of my website at Call me directly at 703-539-2529.

Video summaries of some articles are available on YouTube on the Ask Eli, Live With Jean playlist.

Eli Tucker is a Licensed Real Estate Agent in Virginia, Washington DC and Maryland with RLAH Real Estate, 4040 N Fairfax Dr # 10C Arlington VA 22203. 703-390-9460.

About Matthew R. Dailey

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