The 20% Down Payment Myth

If your clients are new to the home buying process, they've most likely been getting advice from all around them. Without having experience purchasing real estate, buyers may not be able to tell the good advice from a mortgage myth. Some advice is helpful, but misconceptions and myths about the mortgage industry can lead buyers astray and make getting a home loan more difficult. One example of a mortgage myth is that a borrower needs to have a 20% down payment to get a home loan.

Why the 20% Down Payment Myth?

It's hard to say where the exact number of the 20% down payment came from. It was most likely a required amount in the past, but that requirement is long gone. As conventional wisdom goes, the higher the down payment, the lower the risk of foreclosure for the lender.

Putting a 20% down payment (or more) on a home is ideal and can be the best course of action because it has several benefits:

1. Smaller monthly payments
2. Possible lower interest rate
3. No Private Mortgage Insurance on Conventional financing

It's Not the Only Way!

These are nice features of putting a large down payment on a home, but putting 20% down is not the only way to own a home. Pacific Residential Mortgage has several awesome low and no down payment mortgage options:

• FHA loans - 3.5% down payment minimum
• Conventional Loan (with PMI) - 3% down payment minimum
• Home Ready Mortgage - 3% down payment minimum
• VA loans - 100% financing
• Good Neighbor Next Door - as little as $100 down payment required
• USDA Loan - 100% financing
• Jumbo Loan - 15% down payment minimum with no PMI

Don't Empty the Savings

A home's affordability is not solely about the size of the down payment. Being able to afford a home is about sustaining the mortgage payments and other homeownership expenses over the life of the loan.

Emergencies happen in home ownership. Borrowers will want to have enough saved to be able to pay for emergencies; so putting everything they have into a down payment may not be wise.

Every buyer is different! Potential borrowers should talk with a licensed lender they trust about their qualifications before they give up on their home ownership dreams! If you or your clients have questions about down payments, please fill out the form below or contact us!