As we mapped out in our homebuying timeline, understanding what you can afford is key, and this includes your down payment. If you're like most, your down payment is top of mind as you embark on your homebuying journey. Whatever you do, don't hang a white towel from your window just yet.
It might be easier than you think once you understand your options and the two key principles:
You don't need a 20% down payment. This is one of the biggest misconceptions in the market, with many homebuyers putting down significantly less. In fact, the average down payment for first-time homebuyers is 5%, according to the National Association of Realtors®. Plus, options like our Home Possible® mortgage allows qualified borrowers to put down as little as 3%.
Putting down less than 20% means you'll be required to pay private mortgage insurance (PMI). However, if putting 20% down is not an option or will deplete all your savings and leave you with no financial cushion, it's probably not in your best interest. Plus, once you've built equity of 20% in your home, you can cancel your PMI.
Assistance is available. Pulling together enough money for a down payment may be a challenge, but the funds don't necessarily need to come from your savings account, nor do you have to do it alone.
With many of today's mortgage options, your down payment can come from a variety of sources other than personal savings, including gifts from your family or employer. For many homebuyers, this is a huge bonus.
There are also hundreds of programs across the nation that provide down payment assistance, with eligibility requirements varying based on your location, income and other criteria. Check out Down Payment Resources' handy online tool, or explore HUD's listing of available programs by state. The down payment program benefit is typically around $10,000, perhaps enough to get your funds.