Fact Check: 75% Of Americans Put Less Than 20% Down Payment To Buy Homes

Fact Check: 75% Of Americans Put Less Than 20% Down Payment To Buy Homes


Photo: Avi Waxman on Unsplash

Many wannabe homeowners put their dreams on hold and watched in dismay as home prices skyrocketed out of reach in the pandemic housing boom. Now that mortgage rates are at a four-month low and federal funding fee changes are pending, many are hoping for a more affordable loan.

In an effort to fight inflation, the Federal Reserve has been steadily increasing its benchmark Federal Funds rate and appears committed to continuing to do this until inflation is under control. 

A 30-year mortgage rate is currently 0.93 percent lower than it was last fall when rates hit 7.08 percent. For a $500,000 home loan, the lower rate saves you $300+ on your monthly payment and more than $110,000 in interest over the life of the loan.

On top of reduced interest rates, the Federal Housing Finance Agency (FHFA) has announced changes to its fee structure beginning May 1, 2023. These changes affect conventional loans and will reduce the cost of a loan for certain borrowers (while increasing it for others), CNBC reported.

A 20-percent down payment on a home used to be the industry standard but the industry has changed to make homeownership more accessible. It’s possible to get a mortgage for as little as 3 percent down.

Although a large down payment can save you hundreds of dollars a month in interest, it turns out that most people are unwilling to give up more of their hard-earned cash than they have to.

In fact, 75 percent of Americans put less than 20 percent down to buy homes, according to a survey by
National Association of Realtors.

The average down payment paid for a mortgage is about 6 percent, according to Rocket Mortgage. Some loans such as those from the Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) require no money down.

The larger the down payment you give your lender, the lower your interest rate. A larger down payment generally means you’re a less risky borrower.

A 3-percent down conventional loan can be a smart choice for first-time homebuyers and people who haven’t owned a home in the last three years, but it’ll cost you.

First-time homebuyers can qualify for fixed-rate mortgages up to $625,000 in most areas for single-family homes, condos, townhouses, and planned unit developments (PUD). But with a less-than-20 percent down payment, you’ll likely have to pay private mortgage insurance (PMI) until your home equity reaches at least 20 percent.

Lenders require PMI to protect themselves should borrowers default on their loans. Better Lending: if homebuyers can pay 20 percent or more as a down payment, they avoid having to pay private mortgage insurance.

PMI costs are 0.58-percent-to-1.86 percent of the original loan amount per year. If you buy a $300,000 home, you could be paying $1,500 to $3,000 per year in mortgage insurance or $125 to $250 per month.

With a 5-percent down conventional loan — the lowest down payment you can make — you can choose between an adjustable-rate mortgage (ARM) or a fixed-rate mortgage and get a lower interest rate. An ARM has a low introductory fixed interest rate for the first five, seven, or 10 years (often lower than a traditional fixed-rate mortgage) and can help save money in the long run if you plan to sell the home within 10 years. After the introductory period ends, the interest rate adjusts twice a year up or down, according to Better.com, a platform for mortgage origination and related services.

A 10 percent down payment can be a smart choice because it could mean a lower interest rate and smaller monthly payment. PMI will be less than for homebuyers who put 3-or-5 percent down. With a 10% down payment, homebuyers can qualify for fixed-rate and adjustable-rate mortgages up to $548,250 (in most areas) for single-family homes, condos, townhouses, and planned unit developments (PUD) for both primary and secondary residences.