Why You Don’t Need 20% Down Payment To Buy A Home

I am frequently surprised by how much incorrect information about home financing is out there amongst the public. I often speak to clients of mine who are intelligent and educated yet have absolutely no idea what their mortgage options are, or worse yet, are operating under a false narrative that 20% down is the one and only way to buy a home.

This translates into someone who could be a homeowner but is instead renting in perpetuity.
This means they are losing out on having both the pleasure of owning their own home and accumulating and appreciating an asset for wealth building.

The largest misconception with the purchasing of a home is that a 20% down payment of the purchase price is required without exception.

THIS STATEMENT IS TOTALLY FALSE.

It has been for decades. And it is the main reason there are many people out there renting when they are fully qualified and would benefit greatly from homeownership.

There are several good mortgage products which can work well for buyers depending on their situation, some with 3%  down of the purchase price, some with no money down even.

Mortgage Programs That Offer Low Down Payments

Here is a breakdown of some of the low down payment mortgage programs out there that we offer at A and N Mortgage:

3% Down Payment Conventional Mortgage: This is fundamentally no different than a 20% down mortgage, it is secured through the same conventional agencies (Fannie Mae and Freddie Mac).  

Federal Housing Authority (FHA) Loan: These loans require 3.5% down and are more relaxed on income and credit. One great thing about these is that multi-units (2-4 units) are allowed with the same rates and the same 3.5% small down payment. On a personal note, I purchased a 4-unit building with an FHA loan a few years back because the Chicago mortgage rates on the FHA were better than a conventional mortgage.

USDA Loan: This loan offers 100% financing for those living outside of urban areas. No down payment is required. Over 100 million people are eligible for this program.

Veteran (VA) Home Loan: For those that have military benefits, the VA loan is a fantastic option.  100% financing is offered, so no down payment is required, and no backend private mortgage insurance is required.

Various Grant Programs: As a mortgage banker and broker, A and N offer several proprietary and public sponsored grant programs where as little as $1,000 is needed towards a down payment.

The Bottom Line

The bottom line is that there is an incredible amount of mortgage options available that people don’t know about because they have been so ingrained with the 20% down misnomer.

The soundest way to accumulate wealth is through real estate and those that aren’t taking advantage of that because they haven’t been educated properly are doing themselves a huge disservice.

There is certainly nothing wrong with putting 20% down or more on a mortgage if your financial situation allows it. But no matter what program you choose you should make sure to be fiscally responsible with the housing payments you’re taking on.

With that said, here’s the reality: If someone can qualify for a mortgage responsibly, it will beat renting by leaps and bounds every time. If you have any questions, contact me today or speak with one of our A and N Mortgage specialists to discuss your options.

Additional Read: Tips For Saving For A Down Payment On A Home

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.