Education is the Key
For first-time home buyers, the challenge of coming up with a 20% down payment is often difficult enough to keep them out of the market. But the fact is, the 20% down payment is all but dead — and has been for quite some time, especially for first-time buyers. “It’s been my experience that about half of my clients know that there are loans and/or programs that require less than 20% down,” says Kris Lindahl, a real estate agent in Blaine, Minnesota. “The other half still think that they must have at least 20% down in order to qualify for a home loan.” But most people don’t put 20% down on a home, even though it’s the benchmark most often quoted by experts.
More than 70% of non-cash, first-time home buyers — and 54% of all buyers — made down payments of less than 20% over at least the past five years, according to the National Association of Realtors®. The typical down payment for 60% of first-time home buyers is 6% or less, according to NAR's latest data.
But NAR’s research finds few adults 34 and younger (just 13%) realize they can buy a house with a down payment of 5% or less. These low-down-payment programs aren’t new. The FHA has backed home loans with 5% down or less since the 1980s. Conventional loans, which aren’t directly backed by the government, have had them since the 1990s. Fannie Mae and California State University-Fullerton research into what U.S. households know about qualifying for a mortgage came to this conclusion: “Correcting consumer misconceptions may be a more efficient approach to expanding homeownership opportunities by encouraging households who may already be qualified to own homes.”