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Busting Real Estate Myths: You NEED a 20% Down Payment to Purchase a Home

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Busting Real Estate Myths: You NEED a 20% Down Payment to Purchase a Home

Kevin Schumacher

Kevin Schumacher is the leader of our team and has been in real estate since 1994...

Kevin Schumacher is the leader of our team and has been in real estate since 1994...

Jul 16 4 minutes read

One of, if not the BIGGEST, misconception about real estate is that you must have a 20% down payment in order to purchase a home. We are here to tell you that is not the case. In fact, the Realtors Confidence Index from the National Association of Realtors just released that 61% of first-time homebuyers purchased their home with down payments below 6% in 2017. Just in March, 71% of first-time buyers and 54% of all buyers put less than 20% down! 

The Denver Post released an article two days ago titled "Saving for a down payment could take Colorado renters nearly 12 years." The article uses simple math to estimate that with an average home price in Denver of $398,000 that a 20% down payment that you would have to bring to the table is $79,600. A large and rather scary number, especially to the first time homebuyer! This information alone can have buyers disqualifying themselves without even trying.

The Aspiring Home Buyers Profile from the National Association of Realtors (NAR) found that the American public is still somewhat confused about what is required to qualify for a home mortgage loan in today’s housing market. The results of the survey show that the main reason why non-homeowners do not own their own homes is because they believe that they cannot afford them.

This brings us to two major misconceptions that we want to address.

1. Down Payment 

A recent survey by Laurel Road, the National Online Lender and FDIC-Insured Bank, revealed that consumers overestimate the down payment funds needed to qualify for a home loan.

According to the survey, 53% of Americans who plan to buy or have already bought a home admit to their concerns about their ability to afford a home in the current market. In addition, 46% are currently unfamiliar with alternative down payment options, and 46% of millennials do not feel confident that they could currently afford a 20% down payment.

What these people don’t realize, however, is that there are many loans written with down payments of 3% or less.

Many renters may actually be able to enter the housing market sooner than they ever imagined with new programs that have emerged allowing less cash out of pocket.

2. FICO®Scores

An Ipsos survey revealed that 62% of respondents believe they need excellent credit to buy a home, with 43% thinking a “good credit score” is over 780. In actuality, the average FICO® scores for approved conventional and FHA mortgages are much lower.

The average conventional loan closed in May 2018 had a credit score of 753, while FHA mortgages closed with an average score of 676. The average across all loans closed in May was 724. The chart below shows the distribution of FICO® Scores for all loans approved in May.

Bottom Line

If you are a prospective buyer who is ‘ready’ and ‘willing’ to act now, but you are not sure if you are ‘able’ to, let’s sit down to help you understand your true options today.


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