Can First-timers Ditch the 20% Down Myth?

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It’s easy to see why so many first-time homebuyers put off even checking into the listings when buying that first home seems nothing better than a distant future possibility. Yet, for some first-timers who have long assumed that they would be doomed to renting for years to come, it might be possible already. The missing element could be nothing more than accurate information.

Psychologically, when someone suspects that a piece of information will only confirm bad news, they’re apt to avoid investigating altogether. Since the sticking point for most youthful buyers is the size of the down payment they will have to come up with, many potential first-time homeowners shelve the whole idea. They’ve heard they’ll be asked to advance 20% of a home’s price—a chunk of change they probably won’t be able to accumulate for years to come. So why bother even checking further? It’s too demoralizing…

That 20% percentage persists because it does have relevance. That’s widely hailed as the threshold figure that improves an applicant’s chances of being approved and for locking in a lower monthly payment. The popular financial website nerdwallet.com put an accurate spin on it with their editorial, “The 20% Mortgage Down Payment Isn’t Dead Yet”—with the subhead that clarified, “…but most people still make smaller down payments.”

Four current statistics should encourage potential first-timers to explore the possibility that this year could see them their last rent check:

  1. The latest median down payment for first-time homebuyers is 7%.
  2. The median down payment for buyers younger than 31 was 6%.
  3. The median down payment for all buyers last year was 12%.
  4. For repeat buyers (who usually can apply some of the profit from the sale of their first house), the median down payment is less than 20%.

In other words, as the National Association of Realtors®’ 2021 report verified, younger (and all first-time buyers) would do well to dismiss the 20% barrier if it is the stopping point for investigating their own eligibility for joining the ranks of homeowners. It may still be out of reach for the moment—but even so, the horizon is probably a lot closer than most people assume.