Myths About Loans & Down Payments

According to REALTOR® Magazine, 87% of home buyers finance their home purchase. However, some aspiring buyers may delay their purchase due to myths about down payment requirements.

According to the National Association of REALTORS®, thirty-five percent of consumers believe they need a down payment of 16% to 20% of the purchase price. Ten percent believe they need more than 20% for a down payment to purchase a home. However, the typical down payment is much lower.

For first-time home buyers, the average down payment over the last three years has ranged between 6% and 7%. For repeat buyers, the typical down payment was 17% last year, according to NAR. Increases in home equity for owners have paved the way for increased down payments for repeat buyers on home purchases. Many repeat buyers use the equity from a previous home into buying their next home.

Buyers have several loan options available to them when purchasing a new home, each have their own eligibility and down payment requirements. Below we'll share a brief summary of the primary options available and their down payment requirements:

Conventional loans

Putting at least 20% down on a home will increase your chances of getting approved for a mortgage at a decent rate, and will allow you to avoid mortgage insurance. Some conventional mortgages, such as the Fannie Mae HomeReady and Freddie Mac Home Possible mortgages, require as little as 3% down. Conventional loans are not backed by the government, but follow the down payment guidelines set by the government-sponsored enterprises Fannie Mae and Freddie Mac.

Federal Housing Administration (FHA) loans

The minimum down payment for an FHA loan is just 3.5% with a credit score of 580 or higher, but the minimum is 10% with a credit score of 500 to 579.

Veteran's Affairs (VA) loans

VA loans, guaranteed by the U.S. Department of Veterans Affairs, usually do not require a down payment. VA loans are for current and veteran military service members and eligible surviving spouses.

U.S. Department of Agriculture loans

USDA loans, also have no down payment requirement. USDA loans are for rural and suburban home buyers who meet the program's income limits and other requirements.