Do you still need a 20% down payment to buy a house?

August 31, 2021, 1:00 PM UTC

When it comes to saving for and buying a home, most Americans rely on the general rule of thumb that they need to have 20% of the home price saved for the down payment. 

But the 20% down payment is “the biggest myth that’s out there,” said Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors (NAR). 

Last year, the median down payment for first-time homebuyers was just 7%, and it hasn’t risen above 10% since 1989, Lautz told Fortune. In fact, 72% of first-time homebuyers put down less than 20% for their down payment this year. 

That’s because there are actually a lot of first-time homebuyers who take advantage of low down-payment programs and assistance, such as the Chenoa Fund, the HomeReady and Home Possible mortgages, as well as a variety of federally backed loans through the U.S. Department of Housing and Urban Development and state programs.

“Unfortunately there are potential homebuyers who are out there and not aware these programs exist, and maybe could enter homeownership significantly faster,” Lautz said. 

Redfin chief economist Daryl Fairweather agrees, saying that a 20% down payment is not always necessary. “You may be able to put as little as 3% down, though most buyers put down more,” Fairweather told Fortune.

But both Lautz and Fairweather said that in today’s competitive market, it can be an advantage to come in with a higher down payment, or even better, an all-cash offer. Nearly a quarter of homebuyers, 23%, submitted an all-cash offer for a home this year, according to NAR’s research. “Buyers should research how competitive the market is for the type of home they want to buy in their area,” Fairweather said. 

It’s also worth noting that homebuyers who put down less than 20% will likely have to pay for private mortgage insurance, which is an added housing expense that doesn’t help with building home equity. “If you can afford it, offering to put down at least 20% is ideal, especially in a competitive market like this one where you’ll likely compete against other well-financed buyers in bidding wars,” Fairweather said. “When sellers can choose from multiple offers, they usually prefer higher down-payment amounts.”

Those who are looking to put down less than 20% for their down payment do have options, however, Lautz said. Although they may be competing with all-cash offers, she noted that sometimes sellers can be swayed by things like being flexible with closing dates or putting more money toward the so-called earnest money check, which is a good faith deposit that typically ranges from 1% to 3% of the home price. If the sale goes smoothly, that money can typically then be applied to help cover closing costs or to the down payment.

There’s also nothing stopping homebuyers from getting preapproved for a mortgage with a 20% down payment, then switching to a lower down payment during escrow, Fairweather said. “That can be a good option if you have the savings for a 20% down payment but you don’t feel comfortable putting your entire life savings on the line,” he added. 

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