Most would-be homeowners believe that it’s necessary to pay 20% up front as a down payment when you purchase a home. This would be a major hurdle to homeownership for most people, but the good news is that it isn’t always true. Learn more about the 20% myth so you can better plan to buy a home.

Down Payment Requirements and Loan Type

When it comes to buying a home, there’s a lot of information out there, and not all of it is reliable. This includes conventional wisdom saying that you can’t buy a house if you don’t have 20% of the purchase price on hand to use as a down payment. The good news is that this isn’t true.

The 20% down payment myth is one of the most common pieces of misinformation that’s stated as fact. There’s more than one type of mortgage available, and those different mortgage types come with different requirements. Many factors play a role in determining which options you can consider, including the home’s location, the buyer’s income level, the cost of the home and whether the buyer is a veteran or active-duty member of the military.

For many of these different loan types, you don’t actually need to pay 20% of the total home cost as a down payment. In some cases, you can even get a mortgage with 0% down. This is why it’s important to be transparent with your Mortgage Specialist about what your financial situation is. The more information they have, the faster they’ll be able to match you with the right mortgage type for your needs

Other Important Facts to Be Aware Of

Down payments are actually a fairly nuanced part of the lending process. For example, there’s something called private mortgage insurance (PMI) that can allow borrowers to pay less than 20% on many different types of mortgages. And you don’t necessarily need to justify why you aren’t paying 20%—some people pay less than that so they can have cash on hand for anything from moving expenses to furniture for their new home.

Keep in mind, too, that some loan types do allow the use of granted or gifted funds. This means you can borrow from a family member or apply for down payment grant assistant programs to cover this cost. 

Additionally, your future plans for the home may impact your options around loan type and down payment. If you only plan to spend a few years in the home and then rent it out after buying a second property to use as your primary residence, for example, that may alter which options we can offer you. That’s another reason why your Mortgage Specialist needs as much information as possible when you start your application. There’s no need to hide anything during the mortgage process—we’ve seen it all before and we’re ready to help.

Don’t Let the Down Payment Hold You Back

It’s OK if you just don’t have the funds to finance a substantial down payment. The loan options we outlined in the first section are perfectly valid, sensible ways to finance a home purchase. Even if you end up financing 100% of your home purchase, you’ll still enjoy the financial benefits and security of homeownership.

What are those financial benefits? Well, when you own a home, you don’t need to pay a security deposit. You don’t need to worry about your landlord suddenly deciding to sell the property, forcing you to spend money on a move. And when you have a fixed-rate mortgage (meaning your interest rate doesn’t fluctuate over time the way it does with a variable-rate mortgage), you can expect predictable monthly payments rather than anticipating regular rent hikes.

Homeownership is ultimately a significant investment that results in the possession of a valuable asset that you can leverage in a variety of different ways to improve your financial future. Your home will provide value to you even before you pay off your mortgage thanks to options like HELOCs or cash-out refinance

Still, depending on your situation, it may make sense to wait a bit so you have some savings and a good budget habit in place to ensure you’re ready for all the expenses related to homeownership, including property taxes, repairs and insurance. If you aren’t sure whether now’s the right time to buy or if you should wait, get in touch with your local Directors Mortgage branch so we can help you come up with a plan.

Finding the Best Loan For Your Needs

The question of when it’s the right time to buy a home isn’t just about dollars and cents. Your financial situation does play a significant role in your options as a prospective homeowner, but that doesn’t mean that you need to be extremely well-off with a ton of liquid savings that you can just dip into whenever you need. 

Not all of our clients happen to have several thousand dollars on hand when they start working with us, and that’s OK. We’re happy to work with all of our clients to find the perfect lending solution for their unique needs. It doesn’t make a difference to us if you’d prefer to explore options that don’t involve the “standard” down payment. Your homeownership dreams are just as valid as anyone else’s.

We understand that, for a lot of future homeowners, it can be surprising to learn that you don’t actually need a 20% down payment to buy a house. So many sources use this number as a baseline hurdle that it’s no wonder why this is one of the most common myths our Mortgage Specialists have to dispel. It’s important to remember, of course, that not all loan types allow for a down payment of less than 20%. To make sure you understand the parameters and select a home that fits the necessary criteria to qualify for one of these special low-down-payment loans, talk to a Mortgage Specialist before you start house hunting.