"I Need 20% Down to Buy a House, Right?"

This is easily one of the biggest misconceptions that first time home buyers have when I sit down with them - the belief that, in order to purchase a home, they need to have 20% for a downpayment.  In reality, this is about as far from the truth as possible!  Unless you are buying a 2nd home or planning on using the home as an investment property, buyers absolutely DO NOT need 20% downpayment to purchase a home.

One option that many first time homebuyers choose is an FHA loan.  FHA loans are guaranteed by the federal government and the minimum downpayment is 3.5%, which is significantly less than 20% down.  However, FHA loans have become slightly less desirable over the past couple years because of changes to FHA's mortgage insurance.  Currently, FHA mortgage insurance will never come off of the loan.

An alternative to FHA is a conventional loan.  This is what we typically think of when we hear 20% downpayment loans.  However, most conventional programs allow you to go down as far as 5% downpayment, just slightly above the 3.5% required by FHA.  However, there are times when you can actually go below 5%.  There are specific programs that allow you to obtain a conventional mortgage with 3% downpayment.

So let's review the difference in downpayment required on a $200,000 home.

20% Downpayment Conventional:  $40,000 downpayment required at closing
5% Downpayment Conventional:  $10,000 downpayment required at closing
3.5% Downpayment FHA Loan:  $7,000 downpayment required at closing
3% Downpayment Conventional:  $6,000 downpayment required at closing

No wonder first time buyers think homeownership is unattainable when they believe they will need $40,000+ at closing!  The reality is that 20% is a relic of the past, and most homebuyers are closing with significantly less cash than 20% down.

I work with several fantastic loan officers, so if you have been considering making a purchase but scared that you need 20% down, contact me today and I'll happily put you in touch with one of them!