An economist states that a 20% down payment is not necessary to purchase a house. Instead, the amount needed is specified.

• A recent survey from Clever.com reveals that approximately 77% of potential homebuyers are currently saving for a down payment.
• Danielle Hale, chief economist at Realtor.com, stated that while buyers may attempt to put more money down to eliminate mortgage insurance costs and lower monthly payments, 20% is not necessary.

The prospect of making the down payment as a first-time homeowner can be intimidating. Nonetheless, many individuals have already started working towards achieving this objective.

A recent survey by Clever.com, a housing and real estate research site, reveals that approximately 77% of future homebuyers have begun saving for a down payment.

Recent and upcoming homebuyers in early April were surveyed, and more than half (57%) plan to put less than 20% down, the report found.

Danielle Hale, chief economist at Realtor.com, stated that while buyers may attempt to put more money down to eliminate mortgage insurance costs and lower monthly payments, 20% is not necessary.

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The average down payment in the first quarter of 2021 was 13.6%, an increase from 10.7% in the same period last year, as per Realtor.com.

In 2023, first-time homebuyers typically made a down payment of 8%, while repeat buyers made a down payment of 19%, according to a survey from the National Association of Realtors, based on transactions from July 2022 to June 2023.

Despite recent increases, the typical down payment remains below the commonly considered 20% standard when purchasing a home.

Mark Hamrick, senior economic analyst at Bankrate.com, stated that this is not the law of the land.

'The conundrum of the housing market'

Another way to lower your monthly mortgage payment is by increasing the down payment and decreasing the loan amount. However, many households face difficulties in saving enough for a larger down payment, Hale stated.

She stated that the housing market's conundrum is highlighted by the lack of affordability.

A significant challenge for most homebuyers is accumulating enough savings for a down payment, with nearly 40% of American homeowners citing this as a reason for not owning a house, according to a 2023 CNBC Your Money Survey conducted by SurveyMonkey. The survey involved more than 4,300 adults in the U.S. in late August.

Most homebuyers don't put down 20%

Experts suggest that the rising home prices do not make the 20% goal as daunting as it seems.

According to Hale, the average down payment on a house nationally is around 10% to 15%. However, in certain states, the average is significantly lower than 20%, with some even falling below 10%.

According to Hale, not only is it possible to purchase a home with less than 20% down payment, but a significant number of buyers are actually doing so.

Lower down payments can be made on homes with the help of some loans and programs.

The Department of Veterans Affairs and the U.S. Department of Agriculture both offer loan programs that allow buyers to put down as little as 0% when purchasing homes.

The Federal Housing Administration offers loans with as little as 3.5% down for eligible borrowers, including first-time buyers, low- and moderate-income buyers, and minority groups. These loans are intended to bridge the homeownership gap among these targeted populations, according to Hale.

The down payment for buyers with a conventional loan can range from 3% to 5%, based on their credit score and other factors.

"There are options," Hale said.

A small down payment can come with extra costs

Be cautious when determining how much of a down payment you can afford, as there may be additional costs associated with smaller upfront payments. While a lower down payment can help address affordability issues, it can also be a "double-edged sword," according to Hamrick.

A lower down payment may result in a higher monthly mortgage cost and exclude you from receiving the lender's best interest rate, according to Hale.

If you borrow more than 80% of a home's value, you may have to pay for private mortgage insurance (PMI).

The cost of PMI, which is typically between 0.5% and 1.5% of the loan amount annually, varies based on factors such as credit score and down payment amount, according to The Mortgage Reports.

The cost of mortgage insurance for a $300,000 loan could range from $1,500 to $4,500 per year or $125 to $375 per month, according to the site.

Once you reach 20% equity, you can request your lender to remove mortgage insurance.

Some buyers may opt for a "piggyback mortgage" or obtain a second mortgage to meet the 20% down payment requirement and avoid paying for mortgage insurance, according to Hale.

She mentioned that the second loan usually comes with a higher mortgage rate.