For many first-time home buyers, the idea of saving for a mortgage down payment can be intimidating, especially with the common assumption that 20% of the home’s purchase price is required upfront. According to the National Association of Realtors (NAR), the typical down payment for first-time buyers is much lower. In fact, NAR reports that the average down payment for first-time buyers is around 8%, while repeat buyers generally put down about 19%.

This data shows that a 20% mortgage down payment is not the norm for most buyers, and there are various financing options available to make homeownership more accessible.

So, what’s the contradiction here? Is there one? Is 20% just a loose guide, but not reality?
Let’s take a look.

Your Mortgage Down Payment

Your mortgage down payment is the amount of money you’ll pay upfront toward the purchase price of a home. This money comes out of pocket, from your personal savings or eligible gifts, and represents your initial equity. Your down payment is typically expressed as a percentage of the total purchase price.

The size of your down payment affects your mortgage terms, including the interest rate and monthly payment amount.

However, there is no one-size-fits-all answer when it comes to how much you should put down—it’s all about finding the right balance for your financial situation and goals.
Chase Bank‘s website puts it pretty plainly, “How much down payment you’ll need for a house depends on the loan you get.”‘

Where Did The 20% Mortgage Down Payment Come From?

The standard 20% mortgage down payment has been around for decades, but how did it start?

Traditionally, putting down 20% was considered a benchmark because it allowed buyers to avoid private mortgage insurance (PMI), a type of insurance that lenders require if your down payment is less than 20% of the home’s actual value. While avoiding PMI is still a benefit of a larger down payment, many buyers today are opting for lower down payments due to the availability of different loan programs and personal financial considerations.

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Alternative Mortgage Down Payment Options: FHA, VA, and USDA Loans

For those who don’t have the savings for a large down payment, several loan programs may offer lower down payment options:

FHA Loans: Backed by the Federal Housing Administration, FHA loans are a popular choice for first-time buyers because they allow for down payments as low as 3.5%. These loans are designed to help those with moderate incomes and less-than-perfect credit scores to buy homes.
VA Loans: If you are an eligible veteran or active-duty service member, you may qualify for a VA loan through the U.S. Department of Veterans Affairs. VA loans often require no down payment at all, making homeownership more accessible to those who have served in the military.
USDA Loans: The U.S. Department of Agriculture offers loans for rural and suburban home buyers who meet certain income requirements. Like VA loans, USDA loans may also require zero down payment.

Each of these options has its own set of qualifications and benefits, so it’s important to explore them with a trusted mortgage professional to determine which one might be the best fit for you.

How to Choose the Right Mortgage Down Payment for Your Financial Situation

Choosing the right down payment amount is a personal decision that depends on your financial situation, long-term goals, and comfort level. Here are some factors to consider:

Your Savings: Consider how much you have saved and how much you are comfortable using for a down payment. Keep in mind that it’s also important to have a financial cushion for unexpected expenses that may arise during the home buying process or after you move in.
Loan Programs: Different loan programs have different down payment requirements. Research your options and speak with a mortgage advisor to find a loan that fits your needs.
Monthly Payments: Remember, a larger down payment typically means lower monthly mortgage payments. However, you don’t want to stretch yourself too thin. Calculate how different down payment amounts will affect your monthly budget.
Long-Term Investment: Homeownership is a long-term investment, and the equity you build with your down payment is just the start. Consider your future plans and how long you intend to stay in the home when deciding on your down payment amount.

Is The 20% Mortgage Down Payment a Fact or A Myth?

Well, I wouldn’t actually call the 20% down payment a myth, since it has been seen as the “standard” for decades, and some loans could require this down payment amount.
But is it required across the board for all loan types? Absolutely not!

And while saving for a down payment can be a challenge, understanding your options can help you make more informed decisions.

Whether you’re looking to buy your first home or planning for the future, it’s important to explore all your financing options and choose the one that best aligns with your goals.

Remember, there are many paths to homeownership, and finding the right one for you is what matters most!

This information is not intended to be taken as financial advice. Please check with a professional mortgage lender for verification and current facts about loan down payments.