20 Percent Down is Nice, but NOT Mandatory

Due to misunderstood government regulations instituted in the past two or three years that were meant to stabilize the housing market, many folks are under the impression that they must have 20% down to buy a home. This is categorically untrue. Not only do 3.5% down FHA loans still exist, they’re actually the most popular loan out there, especially for first time home buyers.

The VA loan still requires zero down. VA loans are far easier to obtain than most people think. Contrary to popular belief, the seller is NOT required to pick up closing costs for a VA home buyer. The VA has been working diligently to improve appraisal times and in my experience it’s working. The last couple VA appraisers I’ve worked with have returned results in the same time frame as FHA and Conventional appraisers.

And though the norm for Conventional home loans is 20% down, this is simply the ‘standard’ not necessarily a requirement. As a matter of fact, several lenders I’ve spoken with recently offer a 3% down Conventional mortgage. This of course depends on your credit score.

Information from Zillow estimates what a 20% down payment would cost you and what the benefits are.

Homebuyers have to spend more than two-thirds of the average annual income to afford a 20 percent down payment—or, arguably, more favorable mortgage loan terms. According to Zillow, a 20 percent down payment on a median-priced home ($192,500) is $38,500; the median income is $57,397.

The ratio rises in the nation’s hottest housing markets. In Los Angeles, Calif., for instance, a 20 percent down payment on a median-priced home ($590,000) is $118,000, higher than the market’s $64,806 median income.

“Saving enough cash for a down payment is a major barrier to homeownership, especially in expensive markets, where a 20 percent down payment can cost nearly $200,000,” says Jeremy Wacksman, Zillow’s chief marketing officer. “While it’s possible to buy a house with a smaller down payment, 20 percent ensures the best rates. As important as it is to find a monthly payment you can afford, some buyers’ budgets will come down to the amount of cash they can bring to the table.”

Indianapolis, Ind., Kansas City, Mo. and Pittsburgh, Pa. have the lowest ratio of income to down payment of the markets analyzed, at 48 percent.

One in five homebuyers say the down payment is their top concern, with the majority saving for it gradually, according to Zillow. Some, still, are putting gifts or loans from family and friends towards the payment.

Though it is not a requirement, a 20 percent down payment can result in significant long-term savings. Homebuyers with more down generally receive better mortgage loan terms—lowering the interest rate by half on a $200,000 loan saves $20,000, for instance.

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Bill Salvatore / Arizona Elite Properties
Residential Sales, Marketing, and Property Management