Do You Need 20% Down To Buy?

You don’t need 20% to buy a home, but the more you put down, the better.

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Do you need to put 20% down to buy a home these days? Buyers ask us this all the time, and the answer is no. However, there are three benefits to putting down that much:

1. A lower interest rate. The more money you put down, the better the chance that your lender can get you a lower interest rate. They look at your overall financial profile, including your credit score, debt-to-income ratio, assets, and more. They assess the level of risk in lending to you, which means that if you have more to put down, they may think you’re less of a risk.

2. You’ll pay less overall. So if your interest rate is lower, you’ll pay less over the life of the loan. Depending on the size of your loan, you could end up saving tens of thousands of dollars. Putting 20% down also means you won’t have to pay private mortgage insurance, which can cost a few hundred dollars per month, depending on how much you're borrowing.

3. Sellers look for high down payments. Especially in multiple-offer situations, sellers look for 20% or higher down payments simply because the perception is that you have plenty of money and will be a safe buyer to choose. Of course, that’s not always necessarily the case; someone putting 5% down could be a very reliable buyer, but they’re perceived as being riskier.

You don’t have to put 20% down, but there are advantages to doing so.

So, if you don’t have 20% to put down, should you wait to buy until you do? Well, it depends. It depends on your credit score, the market, and your current situation. For example, if you’re renting, you’re paying 100% interest and aren’t accruing any wealth or getting tax advantages, so you’ll be gaining quite a bit by buying a home.

Interest rates have increased, but they are still low compared to historical averages. If you have to sell your current home first, you can take advantage of the market right now by selling for a high price and still getting a low rate on your next house. Also, there are many down payment programs you can use; some require only 0% or 3% down.

If you have any questions or are unsure whether you should buy now or not, reach out to us via phone or email to schedule a free consultation to go over your options, and we’ll also connect you with some fantastic lenders. Additionally, if you have an idea for a topic you’d like us to cover in a future blog, please let us know.

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