Buying a home can be a complicated process. Unfortunately, many people have some misconceptions about what it takes to own a home.
In particular, new data from the from National Association of Brokers found that most people are confused about what type of down payment would be required to buy a home.
The NAR study found that consumers typically believe they need an average down payment of 20% of the property’s value to buy a property. And up to 35% of people think they have to put up 16-20% of the value of their home as a down payment.
If you thought it could be now a good time to buy a home, do not fall into the belief that you are need a large down payment to own a home. Here’s what you need to know.
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What down payment do you really need to buy a house?
First things first, cutting back 20% on a home is definitely the best move if you can do it. A deposit of 20%:
- Offers you the largest selection Mortgage lenders
- Helps you get better Mortgage rates because lenders consider loans with higher down payments to be less risky
- Allows you to avoid payments private mortgage insurance, an insurance that you pay as part of your monthly expenses even though it only protects the lender (not you) from losses in the event of foreclosure
- Helps make sure you don’t end up with one mortgage that exceeds the value of your home, which can create major problems when refinancing or selling your property
But while a 20% deposit is ideal, it generally is Not required.
The reality is that many conventional lenders allow you to buy a home for a lot less money – sometimes as little as 3% (although 10% is more common). And some government-sponsored loans even leave you even Buy a home with no down payment.
For more information on obtaining a minimum down payment mortgage, see the following resources:
Should you drop less than 20%?
While the best pull is to cut 20% if you can swing it, it would be difficult or even impossible for some people – especially in an area with a high cost of living. If it took you 20 years to save a 20% down payment, it makes little sense to keep renting for most of your adult life just because the down payment requirements are difficult for you to meet.
If you are 100% sure that you can afford the mortgage payments, get a loan at a good interest rate, and otherwise financially ready to buy a home but don’t have 20% left to build, then don’t let yourself go being fooled about your deposit requirements will prevent you from proceeding. Start by finding the right home for you so you can enjoy all of the perks that come with having your own home.