You have probably heard the old rule: you should put 20% down when buying a home. But you usually don’t need to, and most homebuyers don’t. Here’s what you need to know when considering your down payment size.

What Type of Homebuyer Are You?

According to the National Association of Realtors:

● Repeat homebuyer. The typical repeat buyer puts down around 23%. Many of these homebuyers use the equity they’ve built up in the home they’re selling to put a down payment on the home they’re buying.

● First-time homebuyers. Typically put down around 10%. Without any home equity to draw on, they usually rely on their savings alone.

What Type of Loan Are You Getting?

Your down payment size can depend on the type of mortgage you choose:

● Conventional loans: Over two-thirds of conventional borrowers put down 10% or more, while about a third put down 25% or more. Many of these borrowers are looking to hit the 20% mark that eliminates the need for private mortgage insurance (PMI).

● FHA loans: The vast majority of FHA borrowers put down 10% or less. 20% is uncommon.

● VA Loans: Zero down is the norm.

The Benefits of Putting 20% Down

If you can comfortably put 20% down on a home, there are significant advantages:

● Smaller monthly payment. The more you put down, the less you borrow, giving you lower principal and interest payments.

● Less interest over time. Borrowing less money means paying interest on a smaller balance for the life of the loan.

● A stronger offer. Sellers often see a larger down payment as a sign the buyer’s financing is solid. This can give you an edge in a competitive market.

● Potential better rate. A larger down payment means less risk for your lender, which could help you get a more competitive interest rate.

● No private mortgage insurance. Conventional loans with less than 20% down usually require monthly PMI. On a $300,000 loan, PMI typically costs between $115 and $375 per month. These payments usually last until you reach 20% equity in the home.

You don’t need 20% down to buy your next home. But if your savings or home equity puts it within reach, it’s worth exploring. To discuss how down payment might affect your financing options, contact a member of the Decker Group at (214) 908-6792 or connect with us online.