The Myth of the 20% Down Payment

When people think about buying a home, they are often discouraged by the idea of saving enough money for the down payment. Indeed, surveys have shown that the greatest impediment to home ownership for prospective buyers is the down payment. However, many potential buyers have the false notion that a mortgage requires 20% of the home's purchase price paid up front. In reality, the median down payment in 2017 was only 10%, and many buyers paid even less than that!

When breaking the total number of homebuyers in 2017 down by their history, a definite trend emerges between repeat and first-time buyers. A typical repeat buyer was able to utilize the money from the sale of their previous home to put down 14% on their new mortgage. Conversely, a typical first-time buyer only put down 5%, the lowest amount since 2013! In fact, 61% of first-time buyers put down between 0% and 6%!

These numbers put into perspective the fact that the 20% down payment is largely a myth. However, if the idea of saving for 5-10% of the home's purchase price still gives you nightmares, remember that it can't hurt to ask for help. Although personal savings were the most common down payment source for first-time home buyers, a solid 25% listed a gift from a friend or relative as their primary source.

Of course, the advantage of putting more money down up front is that it yields smaller monthly payments and a better interest rate. However, lessening the barriers for buyers who struggle to save, especially those just entering the housing market, is often worth the sacrifice.