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Do You Really Need a 20% Down Payment to Buy a Home?

Conventional wisdom says that you need a 15 or 20 percent down payment to buy a home; otherwise you won’t be approved for a mortgage.  That may have been true twenty years ago, but times have changed and so have the down payment requirements for buying a home. If the hurdle of saving for a big down payment has been keeping you from buying a home of your own, read on and you may find that homeownership is within your reach.

If you don’t need a 20% down payment, how much money should you have? You could get a conventional loan with as little as 3% down. FHA loans are also available with a 3.5% down payment. There are even some specialty programs like VA loans and Rural Development loans from the USDA that don’t require a down payment at all. The take away is that you can buy a home with a much smaller down payment than you might have thought.

For those of you that are paying high rents or student loans, coming up with any down payment at all might be a real struggle. To meet your needs, down payment assistance programs are available in much of the greater Dayton area. These programs do have income limits, but will require you to come out of pocket with very little money of your own.

What about closing costs?

Closing costs are the amount of cash that you will need to pay for closing expenses such as loan processing,  the land surveyor, deed recording, etc. Typical closing costs run in the 2-5% range and are not a set percentage, but the actual cost of the various fees. Unlike the down payment, closing costs don’t have to come from you. You could ask for a credit towards closing costs from the seller or get a cash gift from family or friends. You may even be able to add the closing costs into the mortgage.

Don’t let the lack of a down payment become a barrier to buying a home.

The 20% down payment requirement is the biggest homebuying misconception that we hear at the Home Ownership Center. It’s simply not true. If you have questions about down payments or any other homebuying issues, give us a call at 937.853.1600 or fill out the following form. We are a non-profit resource dedicated to guiding you down the smart path to homeownership.