{"id":133027,"date":"2020-03-11T17:53:17","date_gmt":"2020-03-11T17:53:17","guid":{"rendered":"https:\/\/www.ewmrealestate.com\/blog\/?p=133027"},"modified":"2020-03-11T17:53:17","modified_gmt":"2020-03-11T17:53:17","slug":"a-real-estate-myth-that-wont-die-the-20-downpayment","status":"publish","type":"post","link":"https:\/\/ewmrealestate.com\/blog\/a-real-estate-myth-that-wont-die-the-20-downpayment\/","title":{"rendered":"A Real Estate Myth that Won\u2019t Die? The 20% Downpayment"},"content":{"rendered":"
2 out of 3 Americans still think they need to put 20% down to buy a home, per a NerdWallet report. But a good strategy and 3% down are the only things required.<\/div>\n
\n

NEW YORK \u2013 Many Americans may be unnecessarily talking themselves out of homeownership. Thirty-seven percent of non-homeowners say not having enough saved for a downpayment is holding them back from homeownership, but 62% of Americans incorrectly believe you have to have at least 20% of a home\u2019s purchase price to buy, according to NerdWallet\u2019s 2020 Home Buyer Report.<\/p>\n

The truth is: You don\u2019t need 20% of a home\u2019s price to buy it. Some lenders offer mortgages with as little as 3% down. So, how do you know just how much you need to save up based on your specific goals? It requires a little strategizing.<\/p>\n

Before you can zero in on a downpayment target, determine how much home you can afford and when you\u2019d like to start home shopping. First, set your homebuying budget with a home affordability calculator to get estimated monthly payments based on various home prices, down payment amounts and locations.<\/p>\n

Then, set an approximate timeline. Maybe you\u2019re planning a wedding and know you won\u2019t be ready to purchase for at least two years, or you\u2019re just starting a graduate program and want to give yourself five years to find employment and settle down after graduation. Be realistic and account for your life circumstances.<\/p>\n

With a homebuying budget and estimated timeline, you can start running numbers to set a downpayment savings goal.<\/p>\n

1. Is saving 20% by your goal date realistic?<\/h3>\n

Calculate 20% of that homebuying budget and determine if it\u2019s feasible to stash that amount away in the time you\u2019ve allotted.<\/p>\n

If the answer is yes, great! A big downpayment doesn\u2019t only lower monthly payments, it can save you thousands of dollars in interest over the life of the loan and eliminate the need to pay private mortgage insurance.<\/p>\n

If it\u2019s no, you have two options: Revisit your goal parameters \u2013 opting for a less expensive home or pushing out your target date \u2013 or consider a smaller downpayment.<\/p>\n

Example: For a $250,000 home, someone starting with $0 saved would need to save about $1,400 each month to reach a 20% downpayment in three years. For most folks, that\u2019s a stretch. Adjusting the timeline to five years would require monthly savings of about $800. While that may be more realistic, a smaller downpayment could get you in a home sooner and with less stress to your monthly household budget.<\/p>\n

2. How much can you save by your deadline?<\/h3>\n

What\u2019s the most you can save monthly for your down payment goal? If you don\u2019t already know the answer, create a monthly household budget to help figure out where your money is going and how much you can set aside.<\/p>\n

At a high level, allocating 50% of your post-tax income toward your needs, 30% toward your wants, and 20% toward savings (including your downpayment) and debt repayment is a sustainable approach. But by accounting for all of your income and spending, you may realize you can sacrifice a little of your dining out and entertainment money (wants) temporarily to make homeownership a reality sooner.<\/p>\n

Example: You decide you can set aside $350 each month. If you\u2019re still hoping to start home shopping in three years, this would leave you with $12,600, or a 5% downpayment. Because many lenders accept downpayments of 5%, and even lower, you\u2019ll be in a good place to buy around your three-year target date.<\/p>\n

3. Do you qualify for downpayment assistance?<\/h3>\n

Even setting aside $12,000 in three years can seem out of reach for some people, but all hope is not lost. First-time home buyers, or those who haven\u2019t owned a home for the past three years, may qualify for downpayment assistance, a grant or loan to cover some or all downpayment costs. And in some cases, repeat buyers may qualify.<\/p>\n

Downpayment assistance programs can both shorten the path to homeownership and free up existing savings for closing costs, moving or other homebuying costs.<\/p>\n

Weighing the trade-offs of a high vs. low downpayment<\/h3>\n

A downpayment doesn\u2019t have to stand in the way of homeownership. Smaller downpayments and downpayment assistance programs can help you achieve your homebuying dreams more quickly and leave you some savings for an emergency fund or unexpected repairs.<\/p>\n

It\u2019s worth considering, too, since there\u2019s no guarantee your $250,000 homebuying budget will get you the same type of property in three years as it would if you bought sooner. Home prices have been rising, but what will happen in the future and what it could mean for your downpayment target is hard to know.<\/p>\n

On the other hand, a bigger downpayment can equate to a better interest rate on your loan, lower monthly payment, more equity in your home right away, and not paying monthly for mortgage insurance. Because you\u2019re borrowing less money, you\u2019ll pay less in interest over the life of your loan and have lower monthly payments.<\/p>\n

Copyright 2020 The Associated Press, Elizabeth Renter. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission. This article originally appeared on the personal finance website NerdWallet. Elizabeth Renter is a writer at NerdWallet.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

2 out of 3 Americans still think they need to put 20% down to buy a home, per a NerdWallet report. But a good strategy and 3% down are the only things required. NEW YORK \u2013 Many Americans may be unnecessarily talking themselves out of homeownership. Thirty-seven percent of non-homeowners say not having enough saved<\/p>\n

Read More<\/a><\/p>\n","protected":false},"author":5437,"featured_media":130092,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_expiration-date-status":"saved","_expiration-date":0,"_expiration-date-type":"","_expiration-date-categories":[],"_expiration-date-options":[]},"categories":[12189,12269],"tags":[],"yoast_head":"\nA Real Estate Myth that Won\u2019t Die? The 20% Downpayment - BHHS EWM Realty<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ewmrealestate.com\/blog\/a-real-estate-myth-that-wont-die-the-20-downpayment\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A Real Estate Myth that Won\u2019t Die? 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Thirty-seven percent of non-homeowners say not having enough savedRead More\" \/>\n<meta property=\"og:url\" content=\"https:\/\/ewmrealestate.com\/blog\/a-real-estate-myth-that-wont-die-the-20-downpayment\/\" \/>\n<meta property=\"og:site_name\" content=\"BHHS EWM Realty\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/EWMRealtyInternational\" \/>\n<meta property=\"article:published_time\" content=\"2020-03-11T17:53:17+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/ewmrealestate.com\/blog\/wp-content\/uploads\/2019\/06\/BHHS-On-Solid-Background.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"376\" \/>\n\t<meta property=\"og:image:height\" content=\"376\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Debra Spadafora\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Debra Spadafora\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/ewmrealestate.com\/blog\/a-real-estate-myth-that-wont-die-the-20-downpayment\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/ewmrealestate.com\/blog\/a-real-estate-myth-that-wont-die-the-20-downpayment\/\"},\"author\":{\"name\":\"Debra Spadafora\",\"@id\":\"https:\/\/ewmrealestate.com\/blog\/#\/schema\/person\/9980000bb662aff02a03bbf507c06833\"},\"headline\":\"A Real Estate Myth that Won\u2019t Die? 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