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Busting the Mortgage Down Payment Myth for Perspective Homeowners


Lawrence Yun, Ph.D.

Chief Economist, National Association of Realtors

Aspiring home buyers who are just getting into the real estate market may have heard that putting down 20 percent of the total purchase price is required by lenders to secure a mortgage. The reality is that the amount required for a down payment depends on the loan type. However, the median down payment on a purchase mortgage in 2016 was just ten percent. Oftentimes, down payments are even lower; the median down payment for first-time buyers has been six percent for three straight years.

Common misconception ​​​​​​​

According to the National Association of Realtors’ 2017 Aspiring Home Buyers Profile report, a remarkable percentage of renters think a large down payment is necessary. Nine percent of renters say they believe they need more than 20 percent for a down payment on a home purchase, 26 percent believe they need to put down 15 to 20 percent and 22 percent say they need a down payment of ten percent to 14 percent.

The confusion about down payment requirements, combined with higher rents, rising home prices and a limited supply of affordable entry-level homes for sale, may be keeping aspiring home buyers from breaking into the real estate market, even though nine in ten indicate that owning a home is part of their American dream. 

Getting started

While there are benefits of a larger down payment, such as lower monthly payments and mortgage insurance premiums, there are numerous mortgage options available for creditworthy borrowers with smaller down payments, even as low as three percent of the purchase price, so consumers shouldn’t give up on their home buying dreams just yet. For renters who have the desire to own a home and have steady jobs and good credit, follow these three tips to get started.

First, review your income, savings and debt level to determine how much down payment you can comfortably afford. Next, talk with a few lenders about low down payment loan options and determine how much money you are qualified to borrow. Never borrow beyond what you can comfortably afford. Finally, seek out a real estate professional and discuss your budget and home needs; he or she can show you available homes in your price range.

The mortgage process and buying a home can sometimes be a challenge, but, in many markets, would-be buyers will find that purchasing and owning a home is more affordable and enjoyable than renting, and opportunity awaits.

Lawrence Yun, Ph.D., Chief Economist, National Association of Realtors, [email protected]

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