For many people, the idea of buying a home can seem daunting. One of the most pervasive myths about homebuying is that you need to put down 20% of the purchase price as a down payment. However, this is simply not true. In fact, there are many loan programs and options available that allow you to buy a home with less than 20% down.
Why the 20% Down Myth Persists
The 20% down payment myth is one of the most common misconceptions about homebuying. It stems from the fact that in the past, most lenders required a down payment of at least 20%. This was seen as a way to ensure that borrowers were financially invested in their homes and would be less likely to default on their loans.
Additionally, a 20% down payment also helped to lower the lender’s risk. If a borrower defaults on their loan and the lender has to foreclose on the property, the lender can sell the property to recoup their losses. With a 20% down payment, the lender is more likely to recoup their losses, even if they have to sell the property for less than the original purchase price.
However, the real estate market has changed significantly over the years. Today, there are many loan programs and options available that allow borrowers to buy a home with less than 20% down.
Loan Programs and Options for Buying a Home with Less Than 20% Down
One of the most popular loan programs for buying a home with less than 20% down is the FHA loan. The Federal Housing Administration (FHA) insures these loans, which means that lenders are more willing to offer them to borrowers with less-than-perfect credit or a smaller down payment. With an FHA loan, borrowers can put down as little as 3.5% of the purchase price.
Another option for buying a home with less than 20% down is the conventional loan. These loans are not backed by the government and typically require a higher credit score than an FHA loan. However, some conventional loans allow borrowers to put down as little as 3% of the purchase price.
In addition to these loan programs, there are also down payment assistance programs that can help homebuyers cover the cost of their down payment. These programs are often offered by state and local governments, as well as non-profit organizations, and can provide funds to cover all or part of a borrower’s down payment.
The Bottom Line
While a 20% down payment may have been the norm in the past, it is no longer necessary to buy a home. There are many loan programs and options available that allow borrowers to put down less than 20%, and down payment assistance programs can help make homeownership more accessible to those who may not have the funds for a large down payment. If you’re interested in buying a home, don’t let the 20% down payment myth hold you back. Speak with a lender to learn more about your options and find the best loan program for your needs.