The Truth About Down Payments: 3 Misconceptions Debunked

A topic that has many first-time homebuyers confused is down payments. Visit to learn about three down payment myths and the truth hidden by them.

The Truth About Down Payments: 3 Misconceptions Debunked

When it comes to mortgage down payments, there are a lot of myths and misconceptions floating around. And this false information can discourage would-be first-time homebuyers from taking the plunge and applying for a mortgage. If you want the best chance of securing the home of your dreams, you need the truth. In this article, we aim to clear the air and debunk three of the most common myths about mortgage down payments.

Myth 1: You need to put 20% down.

This is perhaps the most pervasive myth about down payments. And it's also one of the biggest deterrents for first-time homebuyers. Many people believe that they need to save 20% of a home's purchase price before they can even consider applying for a mortgage. But the truth is, no major home loan types require such a substantial down payment. Check out the list below for some common home loan types and how much you may need to put down:

  • Conventional loans - at least 3% 
    • Note: If you do pay 20% down, you won’t have to pay for PMI (private mortgage insurance), and that could result in a lower monthly payment.
  • Federal Housing Administration (FHA) loans - 3.5% to 10%
  • USDA (United States Department of Agriculture) loans - 0% down
  • VA (Veterans Administration) loans - 0% down

As you can see, you don't have to put down 20% to buy a home. For more information about each loan type, read our article entitled How Big Does My Mortgage Down Payment Need to Be?

Myth 2: You will only need the down payment at closing.

In addition to the down payment, you'll also need to set aside money for closing costs. This amount encompasses several charges, including the appraisal, loan origination fees, title insurance, and other costs related to completing your real estate transaction. These costs can add up to anywhere between two and five percent of the home's purchase price. Though, the amount you'll need to pay at closing may differ from this estimate.

You'll also need to bring funds for the following:

  • Prepaid interest
  • Property taxes
  • Property insurance

On top of that, you'll want to have a little extra cash on hand for any unexpected costs that creep up. You may not need to use this money, but it's best to have a buffer just in case.

Myth 3: Down payment assistance is only for first-time home buyers

If you don't have the money saved up for a down payment, don't fret. You may still be able to secure your mortgage with the help of a down payment assistance program. These programs are typically offered by state and local housing finance agencies and certain nonprofit organizations. They are often geared toward first-time homebuyers, but some programs are also available to repeat buyers.

Still, not everyone will qualify for down payment assistance. Each program has its own requirements; you'll need to fit into a certain income bracket and have a certain level of creditworthiness.

To find down payment assistance programs in your area, you'll have to search online and go to their website. The application process will vary from program to program, but you can typically expect to fill out a lengthy form and provide documentation of your income and assets.

The amount of money you receive from a down payment assistance program is up to the program itself. Some organizations may offer a few thousand dollars, while others could provide upwards of $20,000 or more. You'll receive the funds in the form of a loan, grant, or both.

That said, it's important to remember that down payment assistance is not always free money. Sometimes, you'll have to repay the money and may even be required to pay interest. So, ask about the terms and conditions of any program you're considering before applying.

Knowledge is Power

Now that you know the truth about down payments, it's time to start saving up for your own. Remember that the amount you'll need to save will depend on your mortgage loan type, financial situation, and more. For more information about down payments and additional information about the home buying process, be sure to check out our Homebuyer Education courses. The better informed you are, the better your home-buying experience will be.

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