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Why You Should Ignore The 20% Down Payment Myth



If you’ve been playing with the idea of buying a home, you may have come across a belief that you need to save up for a 20% down payment on a home. Perhaps this is even the reason you haven’t pulled the trigger on buying a house. Well, we’re here to tell you that this doesn’t need to be the case. Guess what? This concept is completely a myth.


Yes, mortgage lenders may prefer that borrowers have enough money to put down for a 20% down payment since it lowers their lending risk, but this is in no way, shape, or form a hard-set rule. In fact, there are many options for borrowers to get a mortgage loan with the option to put down a significantly lower down payment.


Here are some options you can consider:

  • FHA Loan: A very popular option among first time home buyers as it was created with the intention of making home buying more accessible. Check out our blog on FHA Loans to learn more.

  • VA Loan: This is something you can consider if you are a veteran or member of the U.S. military. If you’d like to learn more about the eligibility requirements of this type of loan you can do so on their website here.

  • USDA Loan: An option for those in rural and suburban areas. These types of loans can even offer 0% down options.

  • Conventional Loan with Private Mortgage Insurance: These types of loans can allow you to make down payments as low as 3% but will require you to also purchase PMI or Private Mortgage Insurance if you put down a lower amount for your down payment. But - there are options to avoid the PMI, so keep reading.



The reason you may want to consider these options that enable lower down payments is they will allow you to start building equity while not draining as much from your savings and giving you the option to buy a home much sooner than you may be able to otherwise. However, as with all things in life, there are pros and cons. We’ve talked about the pros, so here are cons you may want to also consider. A lower down payment will likely mean that you’re going to be looking at larger monthly payments as well as possibly higher interest rates, and as we mentioned before lower down payments may require the borrower also buy PMI.


Avoiding PMI with less than 20% down is definitely possible, but you will need to look at options such as lender-paid mortgage insurance, a piggyback loan or a bank with special no-PMI loans. All that said, as we mentioned before there are always pluses and minuses to consider. It’s likely that you’ll need to pay higher interest rates and no-PMI loans often have specialized qualifications that you’ll need to meet.


So as you can see, there are benefits to fulfilling that 20% down payment myth in the form of a smaller loan size, lower monthly payments, and no mortgage insurance. However this again will also mean for many that they will have to continue saving up for a longer period of time which is also a period they will need to continue paying rent on a property you will never own. Even more as time goes on housing prices are likely to continue rising along with interest rates. It's up to you to decide what the right mix of timing and costs will be to sensibly buy a home.


Now of course, the down payment is just one factor in the home buying process. There are many other factors that you’ll want to make sure you’re taking into consideration as well - check out our app now available for both iOS and Android. In the app, we’ll be able to provide you with an understanding of what your home buyer profile looks like along with personalized advice to help guide you on your home buying journey.


Thanks for sticking with us until the end of this article. If you found this post helpful please like, comment and share with friends and family who you think may also benefit from this information. We're constantly pushing out new content regarding ways consumers can build their credit and wealth while optimizing their path to homeownership. So like always, stay tuned for future updates!