The 20% Mortgage Down Payment Is Dead

For first-time home buyers, the challenge of coming up with a 20% mortgage down payment is often difficult enough to keep them out of the market. But the 20% down payment is all but dead — and has been for quite some time, especially for first-time buyers.

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The average down payment on a house

Most people don’t put 20% down on a home, even though it’s an oft-quoted benchmark.

Because outliers can skew an average, the telling figure for what other home buyers put down is the median down payment, meaning half paid that much or above, and half paid that much or below. For first-time home buyers who financed the purchase, the median down payment was 7%, according to a 2018 survey by the National Association of Realtors. The median down payment for repeat buyers who financed was 16%.

“It’s been my experience that about half of my clients know that there are loans and/or programs that require less than 20% down,” says Kris Lindahl, a real estate agent in Blaine, Minnesota. “The other half still think that they must have at least 20% down in order to qualify for a home mortgage.”

Minimum down payment on a house

The minimum down payment for a house depends on the type of loan and a lender’s requirements. Here are the minimum down payment requirements for the most common types of loans.

  • Conventional loans, which aren’t guaranteed by the federal government, can have down payments as low as 3% for qualified buyers. Some lenders offer down payment assistance grants to allow even lower down payments.

  • FHA loans, backed by the Federal Housing Administration, require a minimum 3.5% down. FHA loans allow lower minimum credit scores than conventional loans.

  • VA loans for military service members and veterans, and USDA loans for certain rural and suburban buyers, usually require no down payment. VA loans are backed by the U.S. Department of Veterans Affairs, and USDA loans are guaranteed by the U.S. Department of Agriculture.

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Low minimum down payments: Nothing new

Michael Facchini of Chicago was 23 years old when he bought a multi-family building in 2003 as his primary residence. He put only 5% down, even back then.

“I own it still today and it has proven to be a fantastic investment, even through the crash of 2008,” says Facchini, now a branch manager at Fairway Independent Mortgage.

The FHA has backed home loans with 5% down or less since the 1980s. Conventional loans have had them since the 1990s. And some first-time home buyer programs offer down payment assistance that can further reduce upfront costs.

Some first-time home buyer programs offer down payment assistance that can further reduce upfront costs.

Why don’t home buyers know?

“Many financial advisors, including much of the popular media, speak of the ‘traditional conventional loan’ that assumes 20% down,” Lindahl says. “This type of loan is considered the gold standard and is most often used to quote mortgage rates. Another reason is simply that many banks and lending institutions only deal with 20% conventional loans, as they are considered ‘safer’ and less risky than other, lower-down-payment mortgages.”

Is it better to put down 20%?

Although 20% down payments aren’t strictly required, they may be a good idea. Good reasons to put down at least 20% include:

  • Your monthly payment will be lower.

  • You’ll likely earn a lower mortgage interest rate.

  • Lenders will be more likely to compete for your business.

How much should a first-time buyer put down?

There is no single right answer for everyone. Deciding how much to put down on your first house depends on your financial situation, how long you plan on living in the home, and the housing market in your area.

Here are some general tips:

  • Avoid draining your savings account for a down payment. You’ll want to have some money on hand for closing costs, homeowners insurance and property taxes.

  • Budget for things you’ll need to buy after moving in, like a lawn mower for that new lawn, and for home maintenance and repairs.

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