Buying a home is a major financial endeavor requiring extensive planning and saving. A major upfront cost of
homebuying is the down payment for a mortgage, which varies in amount based on the purchase price. Traditionally,
homeowners have been expected to pay at least 20% of the purchase price as a down payment. But is that always
necessary?

Minimum down payment requirements vary depending on the type of mortgage you get. Even with conventional mortgages,
you may not always need to follow the 20% rule.

Do you need 20% for a down payment?

Mortgage lenders want to make sure you’re a safe investment. Therefore, they take a deep dive into your financial
situation to determine whether you’re likely to pay back the loan with interest in the agreed terms. Lenders check
into your credit history, income statements and any existing debts during the approval process.  

Sometimes, an especially good credit score can mean a lower down payment requirement. However, if you pay less than
20%, you’ll need to purchase private mortgage insurance (PMI). This is an extra fee that protects the lender in case
you default.

First-time buyers rarely spend 20% on a down payment

Thanks to loans guaranteed by the federal government through the Federal Housing Administration, you can often afford
to buy a home, even if the 20% down payment is too steep an upfront cost. 

 

Other loan assistance programs like those offered by the United States Department of Agriculture (USDA) and
Department of Veterans Affairs (VA) also offer looser down payment requirements for first-time homebuyers.

 

If you’re hoping to buy a home in the future, saving for a 20% down payment is an excellent goal, however, there are
alternatives. Compare your loan options carefully to determine which is the best for you and your financial
situation.