Busting 4 Down Payment Myths

When it comes to anything involving a loan, one of the most important facets is the down payment. This is especially true when it comes to real estate. Being able to put money forward is one of the best ways to show the seller that your offer is genuine. However, there are some pervasive myths about real estate down payments that are false or only half-truths. This article aims to show these myths and bust them.

A lower down payment makes a less attractive offer

Many buyers worry that their offer won’t be strong enough to consider if their down payment isn’t very large. While it’s true that some sellers would prefer a cash offer because it eliminates a financing contingency, all-cash offers are a small minority. It’s overwhelmingly more common to have financing in place when you put an offer on a house. The amount you are financing should not affect the seller because they will get a check for the closing price anyway. If a buyer puts down less than 20%, there will most likely be private mortgage insurance in addition to your monthly payments, but that is a protection the bank makes for its loan and has no bearing on the seller.

Down payments aren’t necessary

This is an uncommon belief, but it bears mentioning. Down payments are essential to buying something with a loan. Having a down payment is necessary because it shows your financial strength to the seller, and it helps lower your monthly payments. The more cash you can put forward, the lower your payments will be. The only time a down payment isn’t necessary is with an all-cash offer.

There’s no need to put down more than 20%

If you think about it, there is no reason why you wouldn’t put down more than 20% of you can afford it. Especially in a competitive seller’s market, a larger down payment makes for a more compelling and competitive offer. The more cash you can put forward, the better. If you would rather stay at 20% but have more cash for earnest money or escalation clauses, that may work as well. The more cash you can put forward, the better your offer will look to the seller.

3%-5% is all you need to save

It is difficult for first-time homebuyers to save up for a 20% down payment, especially as home prices rise as quickly as they have in the last year. There are many state and federal first-time homebuyer assistance programs that can help new home buyers get into the market and buy a house. Some of these federal programs allow as little as 3.5% down. However, new home buyers should aim to save more than that in order to cover closing costs, which are separate and catch a lot of first-time homebuyers off guard. There are also moving costs to consider, as well as potential early fixes that may arise shortly after move-in like carpet, plumbing, or appliances.