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Too Many Buyers Still Think They Need 20% Down and They Don’t!

Wells Fargo recently conducted a survey that found over one third (36%) of people think they need a 20% down payment to buy a home. This proves that a considerable lack of knowledge remains among people who just don’t realize there are several lower down payment options. In fact, in the first quarter of this year over 40% of non-jumbo mortgages had down payments of 5% or less.  This is up from 38% last year.

After the financial crisis banks tightened up lending standards but even then there were still low down payment options such as FHA which at that time became one of the most preferred lending alternatives.

Low Down Payment Options include:

FHA Loans– as little as 3.5% down

VA Loans– 0% down

Mass Housing– as little as 3% down

USDA – 0% down. Only available in certain rural areas

Fannie Mae/Freddie Mac– as little as 3%

Jumbo Mortgages-  as little as 10% down

As you can see there are many choices and all buyers should meet with a qualified mortgage broker early in their home buying process to review all options and decide what the best fit is for them.

Here is a great chart that illustrates the average Loan to Value ratio of loans over the last 14 years.


This chart clearly illustrates that lower down payment options actually increased after 2009.  FHA mortgages considerably contributed to this.

We are by no means suggesting a higher down payment is an inferior choice. In fact it is a great option since the more you put down the greater amount of equity you have and the lower your monthly payment is.  Just keep in mind this is not a requirement to buy. Every year millions of homes are sold to consumers who choose low down payment options and they work out really well for most people.

Some reading this may think mortgage companies are loosening standards too much again but that is also not true.  In April FICO credit score stated that the average credit score among closed loans was 729 compared to 726 in April of 2014.  So the average score has gone up!

Related blogs:

You don’t need 20% down to buy a home


Wall Street Journal Blog