20% Down?! How about 3%! Debunking the longstanding 20% down myth

The biggest roadblock to homeownership has historically been coming up with the necessary down payment. The longstanding myth that you need 20% down to purchase a home needs major debunking – 20% is a thing of the distant past. Today’s homebuyers are presented with an array of flexible options, making that dream home a tangible reality. The truth is the minimum down payment required is A LOT less than you may think.

The Federal Housing Administration (FHA) has catalyzed homeownership for many with its lenient minimum down payment of 3.5%. This provision significantly lowers the entry barrier for prospective homeowners, particularly beneficial for those venturing into this realm for the first time. However, FHA loans are not just for first-time homebuyers. Although they are commonly used by first timers, you do not need to be a first-time buyer to utilize an FHA loan. In many cases, you can even have multiple FHA loans at once.

On the flip side, conventional loans offer equally enticing opportunity. For first-time homebuyers or individuals whose income falls below 80% of the Area Median Income (AMI), the min down payment for a primary residence is only 3%! A first-time homebuyer is defined as someone who has not owned a home in the previous 3-year period. For subsequent purchases only 5% is required when income is above that 80% AMI mark. Conventional financing makes homeownership a heck of a lot more attainable with its low-down payment requirements.

For those who can’t meet the minimum down payment requirements there are plenty of feasible options available to qualified buyers. Gifts from family, state funded grant programs, and even down payment assistance programs can get you into a home with little to no money out of pocket. You heard that right – little to no money out of pocket!

The narrative surrounding down payments has evolved tremendously over the last decade. The average down payment percentage for first-time buyers stands at 6%, while the average for all homebuyers is only 14%. This goes to show that the days of spending 10 years to save up for a 20%+ down payment are long gone and there is plenty of financial accessibility in the housing market.

Vacation homes and rental properties, though slightly different in down payment requisites, continue to echo the theme of affordability. A 10% down payment is required for vacation homes, whereas rental properties require a 15% down minimum. These terms depict a more financially inclusive housing market, dismantling the barriers that seem insurmountable.

The contemporary housing market, with its varied down payment options, has debunked the age-old 20% down myth, making homeownership a more attainable dream for a broader spectrum of people. By understanding the distinctions between FHA and Conventional loan requirements, alongside the impact of Area Median Income, prospective homeowners are better equipped to navigate the homebuying process.

If you are in the market to purchase a home but feel like it just isn’t doable due to the financial requirements, reach out to my team. Our seemingly endless programs can help put you on the right path!

Mark Tomaszewski

NMLS 1379363


AZ | CA | NV

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