You Don't Need A 20% Down Payment To Buy A House

Among the most important tips for first-time home buyers: you shouldn't buy every piece of advice people are selling. Take the belief that you need to amass enough cash to make a sizable down payment. While many Americans think that a minimum of 20% is a requirement, the median down payment for first-time home buyers is actually half that, according to the National Association of Realtors.

The down payment is the actual amount of cash you shell out from your bank account to purchase that dream home. It's calculated as a percentage of the purchase price. And there are benefits to budgeting and saving for a bigger down payment. The more you put down up front, the more financially secure you appear to lenders. That means you're likely to secure a better interest rate and lower monthly mortgage. Plus, it gives you a greater amount of equity in your new place. But the reason one-fifth of your home's purchase price is seen as the magic number is because anything less also requires borrowers to pay private mortgage insurance, an additional payment that's determined by your lender.

Though it's more fun to fantasize about your dream kitchen and just how many bathrooms you can afford, determining your down payment is a key piece of preparing yourself to buy a home. Just how much you put down depends on the type of mortgage that's right for you. With a conventional fixed-rate mortgage, you'll pay the same interest rate for the entire 10-, 15-, 20-, or 30-year loan. Meanwhile, with an adjustable-rate mortgage, the interest rate will change depending on market conditions. A down payment of 3% to 20% is standard for these loans.

Those searching in a more rural location could secure a loan from the U.S. Department of Agriculture without putting any money down. The same is true for U.S. military veterans and active service members, who are eligible for a VA loan, guaranteed by the U.S. Department of Veterans Affairs. Another option that's ideal for first-time buyers is a Federal Housing Administration loan. Insured by the federal government, it can be secured for as little as 3.5% down. Running the numbers can certainly feel daunting. So, while you can absolutely do the math, it may pay to work with a financial expert. Not only can they outline your options, they may even help you find down payment assistance programs.