What is the Recommended Down Payment on a Home?
Buying
When people venture into home ownership, one of the most common questions on everyone’s mind is, “What’s the recommended down payment on a home?”
While most buyers understand that 20% is the rule that’s stood for decades, a vastly different housing market has changed everything, and very few people see the issue as being cut and dry anymore. Luckily, there’s clarification available.
The Recommended Down Payment: Averages and Exceptions
As it turns out, that tried and true 20% still holds water today.
As a general rule, 20% of the home’s purchase price is a great cushion to have, and it will help buyers secure a better mortgage rate and enjoy lower down payments. Keep in mind, though, that just because 20% is the recommended down payment doesn’t mean it’s what you’ll be married to paying.
According to the Home Buying Institute, the typical down payment on homes that are selling today is anywhere from 0%-20%. The average for today’s buyers sits right in the middle – at 10%.
When Will a Down Payment Be Higher Than Usual?
While 20% is ideal and 10% is average, there are many situations in which a homebuyer or a couple of homebuyers will pay more than usual for a down payment. In many cases, people with poor credit wind up paying more in down payments since lenders are less willing to loan them large sums of money.
In other cases, people just choose to make a larger down payment because they have that money sitting around and waiting to be spent. In addition to making the loan easier and faster to pay off, this can also result in lower interest rates and shorter loan terms for some borrowers.
When Will a Down Payment Be Less Than Usual?
Wondering how some people get off paying 0% down on a new home? There are many situations in which a person would pay less than the recommended down payment amount.
Typically, these buyers have excellent credit and lenders are willing to ask for less money up front. In other cases, the people who pay less in down payments are first-time home buyers who are taking advantage of federal programs that make low down payments possible.
Why Paying 20% is Still a Good Idea
While there are dozens of situations in which paying less or more on a down payment is smart, most lenders still recommend shooting for a 20% down payment if you can.
In addition to the fact that this ensures you’ll purchase the home without wiping out your savings account or putting yourself in severe financial straits, this also helps improve the rates, payments, and interest on your loan, and make your mortgage easier to pay off on time.
