Wyoming realtors say a 20% down payment for the house is a myth

***For all things Wyoming, sign up for our daily newsletter***

By Ellen Fike, Cowboy State Daily

The age-old belief that homebuyers must have a 20% down payment to buy a home is just a myth that some say has its roots in home selling practices.

ReMax agent Adrianna True told the Cowboy State Daily that although she and her father are both real estate agents, even her mother thought True needed a 20% down payment when she bought her first house in 2019.

“It’s such a myth, but everyone still believes it,” True said. “My mother said that I hadn’t saved enough money to buy a house, since I didn’t have 20%. I had $10,000, but she didn’t think it was enough. It really opened my eyes. »

Really said on average, for conventional borrowers and those who take advantage of first-time buyer programs, the down payment can be 3.5% to 5%.

Cindy Bradley, a mortgage lender for Wallick and Volk, told the Cowboy State Daily that those numbers are similar to what she advises.

True said the myth of the 20% down payment is rooted in a racist real estate practice called “redlining, where services are denied to potential clients who reside in “unsafe” neighborhoods, those typically populated by racial minorities. and ethnic and low income residents.

The National Board of Realtors has pushed to end redlining and ensure real estate is accessible to everyone, she said.

Bradley said the 20% rule started decades ago when banks didn’t have mortgage insurance. Therefore, if a person failed to repay a loan, the bank would lose money.

“The bank says, ‘OK, I’ll let you do 5% instead of 20%, but now you have this mortgage insurance, so that’s our guarantee that you’ll be fine in the end,'” Bradley said. “The bank is not at risk, because the mortgage insurance will make them whole, so they allow less down payment.”

Conventional loans require mortgage insurance until a homeowner’s equity in a home reaches 20%, but the Federal Housing Authority loan, intended for first-time home buyers, requires mortgage insurance for the term of the home. loan, although its cost decreases every year.

While True said having a 20% down payment on a home isn’t a bad thing, a person shouldn’t let a lack of money stop them from pursuing a home purchase. She added that it had been about 20 years since the 20% down payment rule had ceased to be so rigid.

“It’s so frustrating for me to see these myths being perpetuated, especially for young people,” she said. “I can’t tell you how many times my phone has rung and someone is looking for a rental because they think they don’t have enough down payment to buy a house. They’ll tell me they have a 720 credit score and $10,000 saved, but they still think that’s not enough.

She pointed out that a credit score of 620 is the minimum required to qualify for the Wyoming homeownership loan, but also noted that the higher a person’s credit score, the better. .

In 2021, the National Association of Realtors found that the average down payment on a home or condo was 12%, but for buyers 30 and under, the average down payment was 6%.

Bradley said more and more people are choosing to make lower down payments and leave the rest of their money in the bank and earn interest.

“It’s really a question of whether it’s important to keep your mortgage payment low or can you afford the higher mortgage payment and get as little as possible?” she says. “It really depends on a person’s situation.”

***For all things Wyoming, sign up for our daily newsletter***

About Matthew R. Dailey

Check Also

Bank of America Announces Small Business Down Payment Grant Program to Boost Growth of Women and Minority Businesses

New Special Purpose Credit Program Offers Down Payment Grants for SBA 504 and 7(a) Commercial …