Have you ever talked yourself out of applying for a mortgage loan because you thought you could never afford the down payment?
If the house’s total value is over $150,000 that would put a 20% down payment at $30,000. That’s pretty steep…but what if a lender told you that 20% is the gold standard…and that you might be able to sign a mortgage contract at rates as low as 12%, 5%, or even 3%.
Would you reconsider then?
The Myth of the 20% Deposit
Most people say that if you can’t afford 20% you won’t be able to afford the house in the long run. But this is simply not the case, especially if you go by statistics.
According to statistics published by Statista, even in 2019, 56% of homeowners paid less than 20% for their down payment.
By the year 2022, 70% of surveyed millennials put down less than 20%. In fact, 27% put down less than 10% on their first home deposit.
The National Association of Realtors confirmed this data recently stating that over 70% of Americans are now putting down less than 20% as of the end of 2021.
Homeowners simply cannot afford 20% of a deposit for a house that has rising value. By the same logic, lenders can’t afford to be so strict about loans, especially if the homeowner has good credit. Compare U.S. real estate information to the U.K.’s real estate market in 2022.
The Down Payment DOES Determine the Mortgage
On the other hand, the down payment does affect the mortgage timeline, the total loan amount, as well as the interest. Lenders do love higher down payments for sure since a higher down payment means you are less of a risk to the lending company.
But it’s important to budget conservatively and realize that if you empty your savings account for a down payment, you will change your financial planning goals and possibly come up short on other bills required for a home contract, like insurance, property tax, maintenance, utilities, and even unexpected home repairs.
It’s not always a good idea to pay the down payment with your savings. It’s better to spend out of your surplus, or even to start an account just for a home deposit a few years in advance.
While most people do take that risk and pay from their savings, some research from the National Association of Realtors suggests that over half of all buyers sell their residence first and then use that money as a down payment. As much as 28% of first-time buyers use gift money or loans from family/friends as their down payment.
Some Mortgages Are Available With a Down Payment of As Little As 3%
If you exhaust all resources, you may even find that some mortgage contracts are available for as little as 3% – quite a relief from the 20% standard.
If you’re thinking that these opportunities usually come from the government, you’re not wrong!
There are special deals backed by the Federal Housing Administration, the U.S. Department of Veterans Affairs, and the U.S. Department of Agriculture’s Rural Development Program.
However, government assistance is not the only avenue. There are also conventional mortgages that are giving contracts away for as little as 3%, and not just by Fannie Mae and Freddie Mac (other government-sponsored organizations), but also some commercial lenders who want to make a sale, like certain SoFi mortgage loans.
Explore Your Mortgage Loan Options
Simply put, it’s by far the minority of potential homeowners who can afford $25,000 checks. Everyone is flexible in 2022! If you have good credit, a stable job, and a good debt-to-income ratio on your finances, you could qualify for a lower down payment.
Why not get started looking for your dream home by searching The Pinnacle List’s Listings section?