How many times have you heard the 20% rule for mortgage down payment? I hear it all the time, and I wanted to reach out today to let you know it’s not nearly that cut and dry, especially in the current housing market.

In fact, the idea that homebuyers need a 10% to 20% down payment to buy a home is one of the biggest prevailing myths about purchasing a home. According to data from the National Association of Realtors (NAR), 60% of homebuyers put down 6% or less of the purchase price as a down payment, while the median hovers at around 10%.

The trend towards lower down payments is pretty clear:

  • In 2000, the median percent down payment for all U.S. homebuyers was around 18% to 19% of the purchase price.
  • The median down payment in 2019 was 12% of the purchase price, though first-time buyers put down an average of 6% towards the purchase of a new home. Repeat homebuyers averaged a 16% down payment, compared to a high of 25% in 2000.
  • Even so, the myth prevails: 45%  of consumers surveyed by NAR in 2020 believe you need a 16% down payment or more to buy a home.

With home prices still rising at a record-setting pace, there’s more of a reason for buyers to put down less than 20%, especially in high-priced markets. Here are the situations that may warrant a lower down payment:

  • It would take too long to save for a 20% payment. There are many factors that inhibit saving for a down payment, including student loans and credit card debt. High purchase prices can also make 20% down unattainable for many, in which case it may make sense to buy a home with a lower down payment.
  • You would spend all of your savings. There are many more expenses beyond the down payment when buying a home, such as closing costs, moving expenses, and potential repairs. If a 20% would completely drain a buyer’s savings, they may opt to put less down.
  • If you qualify for a government-backed loan. The federal government offers housing loans that require lower or even no down payment, such as a Federal Housing Authority loan and Veterans Affairs loans for eligible military.

All this is to say that every home-buying situation is unique. It’s ultimately important to consult a financial advisor and lender to find out what’s best for you. There are many real financial advantages to putting down 20% that buyers need to consider, so weighing all factors is crucial. 

I’m happy to answer any questions you may have about this, so please do reach out anytime with questions. Thank you, and have a great day!