OK Boomer, You Don't Need 20% Down

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Mortgage and Lending with Guaranteed Rate, Marin County, CA NMLS: 22343

OK Boomer, You Don't Need 20% Down

 

Bound to happen from time to time in the digital age, a saying goes viral --- in this case, "OK, boomer," --- which is meant to expose a close-minded or out-of-touch opinion, thought or mindset of one generation by another (I'll let you figure out the age demographics here).  Hopefully, the topic of this blog will transcend generational differences and address the assumptions about the down payment one needs to make when purchasing a home, versus the reality of what we see every day with those who are actually buying homes.  I think you'll be surprised at the expanse between fact and fiction.

 

Let's start by saying that in the US, it's been widely assumed that a homebuyer must make a 20% down payment of the purchase price.  This concept has been propagated from one generation to the next and since Americans have been buying homes instead of carving them out of frontier land.  In fact, not a week goes by where we don't get a call from a prospective buyer that starts with an iteration of, "We'd like to buy our first home but we haven't saved 20% yet..." Yet, over at least the last 20 years, the average down payment across the US has hovered closer to 6 or 7% of the purchase price.  A far cry from the gold-standard 20% many buyers struggle to save.  Let's look at the number of ways that contribute to a buyer's access to lower down payments:

 

0% Down Payment

Veterans and those in rural areas may have access to 100% financing.  The VA loan program is a huge benefit and great way for our industry to show appreciation for those who have served our nation.  The USDA loan program has geographic restrictions, but for some may also allow access to the financing without a down payment.  VA loans also have access to 0% or reduced down payments at loan levels that exceed the nationwide, $484,350 1-unit max.

 

3% Down Payment

Conforming loans still permit a 3% down payment up to a loan amount of $484,350 (thus permitting a purchase price of approximately $510K at max leverage).  Yes, these loans have PMI, but they can be a great entry program for the first-time buyer, and they are not restricted to veterans, rural areas, income limitations or property types.  Conforming loans are accessible by all who qualify and programs like the Home Ready mortgage have PMI that is less expensive as well.

 

3.5% Down Payment

FHA loans come in at 3.5% down, and in many areas, FHA loans are the bread and butter of the market.  Borrowers with lower FICO scores, higher debt-to-income ratios and other challenges that could trip up a conforming loan, may find the FHA program to be the best fit.  And, FHA will permit 3.5% down even in high-cost areas where the conforming loan limit exceeds $484,350.  Remember that on conforming loans, even in high cost areas, once above a loan amount of $484,350, the down payment requirement steps up to 5%.

 

5% Down Payment

Conventional, high-balance (or super-conforming) and even jumbo will come into play with a 5% down payment.  Again, the higher loan amounts and purchase prices may not touch every state, but across the country stats have proven that this level of initial investment is closer to the norm when it comes to buying into the real estate market.

 

10% Down Payment

Even in super jumbo land (loan amounts that exceed the high-balance conforming limits) and up to price points that much of the country would consider absurd ($3MM+), believe it or not, a 10% down payment mortgage is an option.  And we do them with frequency here in CA.  For a while, the toughest aspect of getting a 10% down loan had nothing to do with the borrower, but instead we observed that sellers in competitive markets overlooked these offers in favor of buyers who structured their financing with a larger down payment.  Now that we've seen some softening in the higher price points, motivated sellers are again considering qualified buyers with 10% down payments.

 

If you examine the statistics for down payment patterns, you'll see that some states, like California, tend to trend toward the higher end of percentage down payments (approaching 20%).  This is due to higher purchase prices in many cases and the fact that those prices push out some of the programs that permit lower down payments.  But in other states (GA, for example), home prices in concert with percentage of veterans, rural areas, and so on, can push the down payment average percent below 3%.  As always, all real estate is local and you should consult with local professionals on your options.  But make no mistake, boomer or otherwise, you don't need 20% to get into most markets.  And if you have questions, send me a letter or give me a call or page me or e-mail or text or Skype or message me when you're ready to set aside your preconceived ideas and focus on the way it really is today.

 

Stop, hey, what's that sound? 

 

 

Robert J. Spinosa
Vice President of Mortgage Lending

Guaranteed Rate
NMLS: 22343 
Cell/Text: 415-367-5959 
rob.spinosa@rate.com

 

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960

Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709
 

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate's Human Resources Department.

 

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood ChicagoIL 60613 - (866) 934-7283

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Debra Leisek 11/14/2019 01:33 AM
Topic:
Home Buying
Location:
California Santa Clara County San Jose
Groups:
Realtors®
The Lounge at Active Rain
Addicted to Active Rain
Bananatude
Old Farts Club
Tags:
fha
home loan
down payment
usda
pmi
jumbo
conforming
home ready
va
mortgage
home possible
ok boomer

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Ambassador
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Michelle Cherie CarrCrowe Just Call...408-252-8900
Get Results Team...Just Call (408) 252-8900! . DRE #00901962 . Licensed to Sell since 1985 . Altas Realty - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

Thank you for a useful breakdown of different "low down payment" loan prorams.

Nov 13, 2019 03:54 PM #10
Rainer
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Sam Kader MLO 130505 MB 78982
Pacific Coast Financial LLC Lic# MB78982 - Seattle, WA
Real Estate NMLS 91980 Mortgage Broker Lic MB78982

Great post Rob. Many millenials are not aware that they do not have to have 20% down payment to buy a house.  Thanks for sharing. 

Nov 13, 2019 06:48 PM #11
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Lynn B. Friedman
Atlanta Homes ODAT Realty Call/Text 404-939-2727 Buckhead - Midtown - Westside -- and more ... - Atlanta, GA
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Rob Spinosa 
Interesting isn't it? A little bit of actual fact can go a long way...
All the best - Lynn
over at least the last 20 years, the average down payment across the US has hovered closer to 6 or 7% of the purchase price.

Nov 13, 2019 07:24 PM #12
Rainer
380,451
Edward Gilmartin
CRE - Boston, MA

It's time to requires 10% down. Makes little sense with the run we have had in real estate to lure folks in who have exhibited an inability to save money. It's not like there is a surplus of homes on market.

Nov 13, 2019 07:30 PM #13
Rainer
18,605
David Smith
Brokers Guild Classic - Lakewood, CO
Residential and Commercial Broker

Nice breakdown Rob, liked the writing style as well!  CA, still love it, spent 20 years there myself, but I suppose I am also enjoying somewhat greater Real Estate sanity in the CO at this point?! 

Nov 13, 2019 08:08 PM #14
Rainmaker
2,790,114
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

That seems to work. And credit to you for using the hip term of today’s youth #okboomer

Nov 13, 2019 09:54 PM #15
Rainmaker
2,790,114
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

David Smith I think it’s great to have a different storytelling style in the world love you and I can be so one note

Nov 13, 2019 09:56 PM #16
Rainmaker
639,919
Debra Leisek
Bay Realty,Inc Homer Alaska - Homer, AK

Very well laid out informative post!!

Everybody look whats going down!!  Thank you!!

Nov 14, 2019 01:23 AM #20
Rainmaker
641,669
Carla Freund
Keller Williams Preferred Realty - Raleigh, NC
Carolina Life RealEstate & Relocation 919-602-8489

Thanks Rob! Most people I run in to aren't worried about the 20% down. A lot want to put 0% down which isn't possible for everyone. For my kids, I'd love it if they can put 20% down and avoid paying PMI. We shall see.

Nov 14, 2019 05:38 AM #23
Rainmaker
1,468,889
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, Blackstone Realty Group - brokered by eXp Realty - Kalispell, MT
The House Kat

Most buyers I've worked with have had down payments of 5% or less. It's great there are ways for them to purchase a home, even without a large down payment.

Nov 14, 2019 06:00 AM #24
Rainmaker
2,598,022
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

This is not only valuable information for boomers, but most buyers hoping to buy a home.

Nov 14, 2019 06:41 AM #25
Rainmaker
2,598,022
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

CONGRATULATIONS Rob, on having this blog FEATURED in the Old Farts Club group!  

Nov 14, 2019 06:42 AM #26
Rainmaker
1,240,821
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

So many myths and misunderstandings surround mortgage financing and homebuying, Rob Spinosa ... it's a constant battle to get the facts out there.  Your post goes a long way to addressing the 20% down myth.  Thank you ... so very well done!

Gene

 
Nov 14, 2019 06:52 AM #27
Rainmaker
396,546
Marney Kirk
Cummings & Co. Realtors - Towson, MD
Towson, Maryland Real Estate

Rob, it is amazing how many people still believe you need 20% down to buy a house! Great post!

Nov 14, 2019 06:56 AM #28
Rainer
288,671
Ron Aguilar
Continental Mortgage - Saint George, UT
Mortgage & Real Estate Advisor since 1995

As a Mortgage lender since 1995 my first conversation to young homebuyers is, their credit profile. After that then we talk about various lending programs that have down payment requirements.

Of course we can only have one converation at a time. My Marketing efforts do include FHA or DPA and that seems to bring them in at a faster pace.

Nov 14, 2019 07:27 AM #29
Rainer
158,175
Anne Corbin
Long and Foster - Lake Anna - Spotsylvania, VA
Serving Lake Anna & Central Virginia

Already shared! Great break down by loan type. Absolutely easy to read and informative. Thanks for taking the time to give us this explanation.

Nov 14, 2019 09:09 AM #30
Rainer
379,082
Jana Holmstrup
Jana Holmstrup - CCO - Kings Mortgage Services, Inc. - Visalia, CA

Agreed! The 20% myth drives me crazy and it perpetuates year after year - regardless of the time and effort put in to squash it. Great post!

Nov 14, 2019 10:04 AM #31
Rainmaker
71,670
Debra Donovan
Park North Real Estate - San Francisco, CA
San Francisco Real Estate

Great overview. Thanks Rob!

Nov 14, 2019 12:59 PM #32
Rainmaker
1,564,123
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

What startled me is what the government considers "rural." More people than I would have expected can get those USDA loans.

I hadn't heard "OK boomer" before. Guess I don't know enough millenials!

Nov 14, 2019 03:39 PM #35
Ambassador
2,896,132
Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

Yet I remain a person who will always put down 20% and avoid useless PMI costs and thankfully my millinial daughter listened to me and not the lenders and internet who said she didn't need to have both a 20% down payment to avoid PMI costs and a nest egg for those things that she will need to do for maintenance after purchase.  She's currently 31 and building her forever house where she will start with about 35% equity when she closes on the permenant loan.  

Just because you CAN do something doesn't mean you should do it.

And FHA loans where PMI never goes away is the absolute worst mistake a young person can make.

Nov 16, 2019 01:54 PM #38
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Rob Spinosa

Vice President of Mortgage Lending, Marin County
Can I Get a Jumbo Loan with 10% Down?
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