September 22, 2020

Do I Need to Put 20% Down on a Home?

Despite the range of down payment options, many people remain confused about how much money you are required to put down. This could leave you overestimating the upfront costs of homeownership.

If you believe the myth that you need to make a down payment of at least 20% to buy a home, you are not alone. In fact, a recent Freddie Mac survey found that nearly one-third of prospective homebuyers think they need a down payment of at least 20% to buy a home. Unfortunately, this misconception remains one of the largest roadblocks for prospective buyers.

Funding your Down Payment

In reality, the typical homebuyer makes a down payment between 5 and 20% of the purchase price, but it's possible to put down even less. The amount that you put down will depend on your lender, the type of mortgage you choose and your unique financial situation. For example, Freddie Mac’s Home Possible® mortgage permits eligible homebuyers to put down as little as 3%.

While most homebuyers use personal savings to finance their down payment, it’s possible to bridge down payment gaps with money from other sources, including gifts, loans from relatives or employer assistance programs. In addition, many state, county, and city governments offer down payment assistance programs to help buyers realize the dream of owning a home. Requirements vary, but if you're eligible you could receive assistance ranging from forgivable loans to cash grants, depending on your needs and qualifications.

Is down payment assistance still available during COVID-19?

Yes. These programs are still widely available. Down Payment Resource reported that of the 2,400 assistance programs nationwide, only 34 programs have been suspended.

Who should you contact for down payment help?

  • Housing counselor: They can help you assess your financial situation and educate you on down payment options. You can connect with a HUD-certified housing counselor at one of our Borrower Help Centers or Borrower Help Network
  • Lender: They’ll educate you on the down payment and mortgage options that you qualify for and should be able to suggest down payment assistance programs.
  • State and local housing finance agencies: Many states offer multiple down payment assistance programs, but the details of each program, including the terms, amount of assistance, borrower eligibility will vary by state.

What is Private Mortgage Insurance?

If you make a down payment of less than 20%, you'll have to pay Private Mortgage Insurance (PMI). This is a monthly fee, rolled into your mortgage payment, that protects the lender if you are unable to pay your mortgage.

Once you've built up 20% equity in your home, you can cancel your PMI and remove that expense from your monthly payment. While PMI is an initial added cost, it enables you to buy a home at today’s low rates and begin building equity.

Remember, you have options when it comes to funding your down payment. For more information, visit My Home by Freddie Mac®.