You Don't Need 20% Down to Buy a Home

One of the biggest myths I hear from homebuyers is that they need a 20% down payment before they can even think about buying a home.

I understand where it comes from. For years, that's what many people were told. The reality is that many buyers qualify with much less. Some conventional loan programs require as little as 3% down, and there are other loan options that may require even less depending on your situation.

Does putting 20% down have benefits? Absolutely. If you can comfortably do it, it may help you avoid paying Private Mortgage Insurance, also known as PMI.

But not having 20% saved shouldn't automatically take homeownership off the table.

What is PMI?

Private Mortgage Insurance is something many buyers pay when they purchase a home with less than a 20% down payment on a conventional loan.

A common misconception is that PMI protects the homeowner. It doesn't. It protects the lender if the borrower defaults on the loan.

Because you're borrowing more of the home's value, the lender is taking on additional risk. PMI allows lenders to offer financing with lower down payment requirements, making homeownership more accessible for many buyers.

"I Don't Want to Pay PMI"

I see this comment online all the time.

People say they don't want to pay PMI, but they also don't want to put 20% down.

Unfortunately, those two things usually don't go together.

It's kind of like saying you want the benefits of a small down payment without the cost that comes with it. In most cases, that's just not how mortgage financing works.

Instead of asking, "How do I avoid PMI?" I encourage buyers to ask a different question.

"Does paying PMI help me buy a home sooner?"

For many people, the answer is yes.

Waiting to save another $50,000 or $100,000 for a larger down payment could take years. During that time, home prices and interest rates may change. In some situations, paying PMI for a few years may actually make more financial sense than waiting.

Every buyer's situation is different, which is why it's important to look at the whole picture instead of focusing on one monthly expense.

Does PMI Last Forever?

Not always.

With many conventional loans, PMI can be removed once your loan reaches 80% loan-to-value, often referred to as LTV, and you meet your lender's requirements.

However, not every loan works the same way. Some loan programs have different mortgage insurance rules, and in certain cases the insurance may stay for the life of the loan unless you refinance.

This is one of the reasons it helps to understand your financing options before choosing a loan.

Build the Right Team

Buying a home is one of the biggest financial decisions you'll make, and you shouldn't have to figure it all out on your own.

A good loan officer can explain the pros and cons of each loan program, including how mortgage insurance works and whether it can be removed later.

As your real estate agent, my job is to help you understand your options and make sure you have the information you need to make a confident decision.

There isn't one loan that's right for everyone, and there isn't one down payment that fits every buyer.

The best decision you can make is an informed one.

If you've been putting off buying because you thought you needed 20% down, let's have a conversation. You may have more options than you realize.

TL;DR

You don't need a 20% down payment to buy a home. Many loan programs allow qualified buyers to purchase with as little as 3% down. If you put down less than 20% on many conventional loans, you'll typically pay Private Mortgage Insurance (PMI). While many buyers see PMI as a downside, it can be the tradeoff that allows you to buy a home sooner instead of waiting years to save a larger down payment. In many cases, PMI can be removed once you reach 80% loan-to-value, though some loan programs have different rules. The key is understanding your options so you can make an informed decision with the help of a trusted real estate agent and loan officer.