A home mortgage is often the biggest financial investment you’ll make in your lifetime, so it’s not surprising that saving for a down payment can be a major hurdle for people on their journey to home ownership. While a 20 percent down payment is considered ideal, it’s not actually as common as you might think, nor is it a necessity to buying a home.
2021 Down Payment Stats
In its 2021 report, the National Association of Realtors (NAR) examined home purchase trends in the U.S. It found the average down payment on a house or condo was just 12%. For home buyers aged 30 and under, that number dropped to 6%, and many people put down even less money – or no money at all.
NAR further broke down the average down payment on a home by age group.
- All buyers: 12%
- Age 22–30: 6%
- Age 31–40: 10%
- Age 41–55: 13%
- Age 56–65: 18%
- Age 66–74: 23%
- Age 95–95: 21%
The NAR report also shows that the median number of years home buyers saved for their down payments was three years. Additionally, student loan debt and credit card debt repayment are the most common expenses that delayed saving for a down payment or home purchase. Luckily, borrowers have an array of down payments options to consider to buy a home sooner.
Why 20 Percent is Considered Ideal
While not a necessity, a 20 percent down payment will provide buyers with quite a few benefits including avoiding private mortgage insurance (PMI), qualifying for a lower interest rate, and resulting in smaller monthly mortgage payments. Depending on where you’re looking to buy a home, a larger down payment can make you a more competitive buyer and stand out to the seller if inventory is low and there are multiple offers on the home you’re eyeing.
Loan Options for Small Down Payments
It’s important to know that you have a variety of down payment options. For qualifying buyers, lenders can offer mortgage options with 10% down or lower if you’re willing to pay the monthly PMI cost. You can even skip the conventional loan and go for a Federal Housing Administration or FHA loan with only 3.5% down if you qualify. If you choose to buy in a more rural area, you might be eligible for a USDA loan, which requires no down payment. And if you have served in the military, you have a 0% down payment option with a VA loan.
Plenty of myths and misconceptions about down payments as well as the whole mortgage process exist in the mortgage industry. Knowing your options and your financial situation will give you a good start in deciding how much money to put down. Finding a knowledgeable Loan Officer helps, too! If you are looking at buying, contact us today and we will get you moving on your home ownership journey!