The DL on Down Payments

Ask anyone and they’ll tell you the first “rule” of real estate is a 20% down payment when you’re buying a home. But have you ever actually sat back and done the math on those numbers? An all-cash down payment on a $250,000 house is fifty grand… so just imagine what that down payment is on a house at the national median price point of $441,000. Who has that kind of money? 

Turns out, not many people. While a twenty percent down payment is certainly a common and widely accepted number, there are myriad options out there nowadays that don’t require such a hefty down payment. According to Realtor.com, the national average is actually closer to just 13%. 

It’s worth noting that this number takes into account ALL homebuyers of all types, including first-time homebuyers, which often have provisions in place to only put down six percent. 

Why To Try For Twenty

While value isn’t necessarily assigned to the buyers who can swing bigger down payments, putting 20% down may lend for an easier closing process and potentially a lower monthly payment. This is because anyone who puts less than twenty percent down is required to carry private mortgage insurance (PMI) which can add several hundred dollars per month to your monthly payment. 

In the eyes of a lender, a smaller down payment means you’re a bigger risk. This is why private mortgage insurance is required. Lenders see low home equity and equate that with risk. The good news is that even if you can’t swing the 20% down threshold, PMI doesn’t last forever. Once you pass that loan-to-value ratio of 80% (meaning you have paid the equivalent of twenty percent of your home’s value), you are no longer required to hold PMI. 

Purchasing a home is likely the biggest financial decision you’ll ever make so knowing all your options is imperative. Talking to a licensed Realtor who will help answer all your questions is the first place to start!