For many homeowners, saving money for a large down payment can take years. Add to that rising house prices and discouragement can set in, especially if house prices are rising faster than you can save. But you don’t need to put 20% down on a new home to get a good mortgage. In fact, putting 20% down on a house might not be the best decision, even when you have the cash.
Recently, clients have been asking whether or not putting 20% down on a new house is a smart move. So let’s dig in.
How much should I put down on a house?
Many homeowners save for years to come up with a 20% down payment. If you’re shopping in a high-cost area, you could be looking at home prices in the $750k range and higher. A 20% down payment would be $150k.
That said, is it wise to make a big down payment for homebuyers with enough cash reserves? With mortgage rates so low, homebuyers can decide to borrow more (at a low cost) and invest their cash reserves elsewhere.
In the past year, the average down payment was 6-12%. Depending on your homeownership goals, deciding on a lower down payment can give you more freedom.
Can you buy a home without putting 20% down?
The truth is, getting a mortgage with a low down payment can set you up for freedom and opportunity.
- Become a homeowner sooner with only 3.5% down
- Start building equity now instead of waiting to save 20%
- Save your cash reserves for emergencies or home repairs
- Use your cash reserves for home renovations
- Purchase a bigger home with greater affordability
Top Home Loans with 3.5% Down Payment or Less
These home loans are popular for first-time homebuyers, but you don’t have to be a first-time homebuyer to get approved.
1. FHA Loan – 3.5% Down Payment
FHA (Federal Housing Administration) home loans have more flexible guidelines, low down payment requirements, and lower credit scores.
2. VA Home Loan – 0% Down Payment
If you’re an active member of the military, a veteran, or a military spouse, this is one of the best home loan options available. VA loans offer low-interest rates and reduced closing costs.
3. USDA Home Loan – 0% Down Payment
Are you interested in a rural area? USDA loans are government-backed mortgages offering low-interest rates and no-money-down mortgages.
Search the USDA eligibility map here.
4. Conventional 97 Mortgage – 3.0% Down Payment
The conventional 97 loan is smart for higher-income buyers who want a 3% down payment. Qualifying criteria are more strict, but the loan has no limitations on income, purchase price, or neighborhoods.
What are the benefits of putting 20% down on a new home?
You can avoid PMI (private mortgage insurance) when you put 20% down on a new home. Private mortgage insurance is an added monthly cost that you’ll need to pay until you have at least 80% equity in your home. PMI protects the mortgage lender in case a homeowner defaults on their loan.
Save on Mortgage Interest
When you put 20% down on a new home, you’ll typically get a better interest rate. Also, since your loan balance will be smaller, you’ll pay less interest over the life of the loan.
Lower Mortgage Balance
Your down payment determines the size of your mortgage. A larger down payment means a lower balance on your mortgage. A lower mortgage balance also means your monthly payment will be lower.
Talk to an experienced mortgage broker about your financial goals. A qualified mortgage broker can help discuss competing goals you might face.
How to Apply
Whether you apply for a conventional loan or a government-backed loan, we can help. Mortgage lenders will assess your debt-to-income ratio, credit history, income stability, and employment status.
We partner with mortgage lenders across several states, and we can help you get approved with a low down payment that fits your financial goals. As a result, many of my clients find out they have more options than they first thought. It only takes a few minutes to get started.
Putting 20% down on a new home is no longer the standard to get approved for a mortgage. Today’s loan options can help you become a homeowner sooner with 3.5% down or even zero down. In addition, government-backed loans such as FHA, VA, and USDA loans can help you become a homeowner while you keep your cash reserves for emergencies or other investments. That said, putting 20% down on your next home could be the right decision for homeowners who want the lowest rate possible and have enough cash reserves without depleting their assets.
If you’re ready to buy a home and start building equity, we can help you get approved with a down payment that fits your budget. We partner with mortgage lenders in California, Oregon, Washington, and Colorado. Mortgage rates are still low, and now is the time to take action.