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


form load / Getty Images

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

This is your deposit.

Find out: what you need to do now to buy a house in 1 year, 2 years or 5 years
See: 5 Common Misconceptions Millennials Have About Homeownership Costs

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 survey, which surveyed 500 tenants and 500 landlords, shows that renters see saving for a down payment as their biggest barrier to homeownership. But it also shows that sometimes these barriers are more imaginary than real.

See: Real estate investment gurus Mindy Jensen and Liz Faircloth: How women can profit from the booming real estate market

Renters want to own – and many of them can

The vast majority of renters surveyed, 78%, said they wanted to own a home. They are mostly optimistic. About half think they will be able to do so within a year or two. Only about 1 in 10 people think they will never be able to own a home.

More than one in four renters, or 27.2%, consider saving for a down payment as the main obstacle to homeownership. In fact, if they received $ 50,000, the most renters, 43.4%, would spend it on a down payment.

But these apprehensions do not always reflect the realities on the ground. The survey found that nearly half of homeowners surveyed invested less than 20% on their home and nearly one in three invested less than 10%.

Be ready : Are we in a real estate bubble?

It is true that tenants do not save enough. Over 70% of renters surveyed saved less than $ 10,000 on a down payment and more than one in three saved nothing at all. Even so, those who save may not have to save as much as they think.

Most people don’t put nearly 20% less

Overall, the median buyer is down 12%, according to a 2020 report from the National Association of Realtors. For first-time home buyers, it’s only 7%, and even that’s up from 6% the year before. According to Zillow, the typical home in the United States is now $ 293,349 – a huge 15% increase over the year thanks to a boiling housing market. Assuming you put 7% down, that’s a down payment of just $ 20,534 – much better than $ 58,670, which is what you would need to put 20% down on the same house.

Good to know: States with the highest property taxes

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

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

See: 17 stupid home buying mistakes that hurt your wallet
To verify:
This is the salary you need to pay for the average house in your state

Don’t be fooled – 20% has its benefits

You don’t have to pay 20%, but if you can, there is a lot of benefit to showing your lender this kind of commitment.

The first advantage is the most obvious. The more money you put in, the less you borrow, the less you borrow, the lower your monthly payments. You will also save money in the long run, as less money financed equals less money paid in interest over the course of the loan. In addition, your loan-to-value ratio will be lower, which could entitle you to a better interest rate.

In most cases, borrowers who deposit less than 20% will need to pay for private mortgage insurance (PMI). This means that you are paying 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 have options if you can’t handle it.

More from GOBankingTaux

Last updated: July 26, 2021

Methodology: GOBankingRates surveyed 500 Americans aged 18 and over from across the country on May 10, 2021, asking six different questions: (1) Do you want to own a home at some point? ; (2) When do you think you can afford to buy a house? ; (3) If you were given $ 50,000 tomorrow, how would you spend the new money? ; (4) What’s the biggest barrier preventing you from owning a home? ; (5) How much have you currently saved for a down payment on a house? ; and (6) How much of your current monthly salary is spent on rent? (Select the nearest number). All respondents had to answer a screening question of: Are you currently a tenant or owner of your home ?, with a response of “Rent”. GOBankingRates used PureSpectrum’s survey platform to conduct the survey.

GOBankingRates surveyed 500 Americans aged 18 and over 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 for your down payment? ; (3) How much of your current monthly salary is spent on housing? (Select the nearest number); (4) If you were given $ 50,000 tomorrow, how would you spend the new money you found? ; (5) Are you more likely to renovate your current home or buy a new home ?; and (6) have you refinanced your mortgage recently? All respondents were asked to answer a screening question: Are you currently a tenant or owner of your home ?, with a response “Own (including paying off mortgage)”. GOBankingRates used PureSpectrum’s survey platform to conduct the survey.

About the Author

Andrew Lisa has been writing professionally since 2001. Award winning writer Andrew was once one of the youngest nationally distributed columnists for the nation’s largest newspaper union, the Gannett News Service. He worked as the business editor for amNewYork, the most circulated newspaper in Manhattan, and as the editor for TheStreet.com, a financial publication at the heart of the Wall Street investor community in New York.

About Matthew R. Dailey

Check Also

How much down payment is enough to buy a house?

How much down payment is enough to buy a house? One of the big mysteries …

Leave a Reply

Your email address will not be published.