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Do I need 20% down to buy a house?

October 24, 2019 by Megan Gullotta Leave a Comment

Growing up, our parents always drilled into our brains that we need 20% down to buy a house. So that is what many young adults today think they need. Well, I’m here to drop some knowledge for y’all!

The sticker shock of needing 20% down discourages many because they see the huge dollar amount and think “that’s going to take me years to save!” and then continue throwing their money away at rent with no plan of buying a house in sight. Good news for you, there are many loan programs out there today to help people like you buy homes. Some programs require a small down payment, others larger, and some, no down payment at all!

The Options

Put the minimum down

For most people, the minimum down payment required is 3%. This is a completely obtainable goal with a savings plan in place. If you’re still thinking that it’s still going to take you years to save up 3% there are some other options that may work for you.

Zero Down Options

VA Loan

This loan is guaranteed by the U.S. Department of Veterans Affairs and you guessed it, only available to Veterans. This loan allows Veterans to purchase a home without a down payment.

Pull from a Retirement Account

You may pull from a Retirement Account and use that money towards a down payment. Depending on which Retirement Account and how much you’re pulling out, there may be additional fees associated with this method.

Down Payment Assistance Program

Another option is to find a down payment assistance program. For Example, Cal HFA is a well-known program that allows first time home buyers to borrow 3.5% of the purchase price, or appraised value (which ever is less) to be used towards their down payment and/or closing costs. This can be a great option for those who struggle saving the down payment.

Pros & Cons of a lower down payment

When putting less than 20% down, there are some things you should be aware of before deciding that’s the route you want to take!

Cons may include :

  • Higher Interest Rate
  • Mortgage Insurance
  • Higher Closing Costs
  • Higher Monthly Payment

Pros :

  • Less money out of pocket
  • Cash stays liquid

In the end, its all about choosing whats best for you and your family. As long as you are able to secure a monthly payment that is affordable to you, buying a house is the right choice. Remember, we all have to start somewhere! Here in California, jumping straight into a Single Family Home may not be obtainable. THAT’S OKAY! Start off with a condo, and in 5 years, you may have enough equity & savings to trade-up into that Single Family Home with the white picket fence!

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Megan Gullotta
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