One of the mortgage myths that refuses to go away is that you need 20% down to buy a home.

I still talk with buyers who have been saving for years because they believe they cannot purchase until they reach that number. Meanwhile, they may already have enough money to buy a home.

Twenty percent down can be a great option, but it certainly isn’t the only option.

Where Did the 20% Rule Come From?

Putting 20% down on a conventional loan generally allows you to avoid private mortgage insurance, commonly called PMI. It also reduces the amount you need to borrow, which means a lower monthly principal and interest payment.

Those are real advantages.

But somewhere along the way, “20% has benefits” turned into “you need 20% to buy a house.”

Those are two very different statements.

There Are Lower Down Payment Options

Depending on the loan program and your qualifications, there are mortgage options requiring considerably less than 20% down.

Some conventional loans may allow as little as 3% down. FHA loans typically require a minimum 3.5% down payment for qualifying borrowers. VA and USDA loans may offer eligible borrowers options with no down payment at all.

The right program depends on the borrower, the property, credit, income and several other factors.

This is why I don’t like applying one rule to every buyer.

But What About Mortgage Insurance?

This is usually the next question.

With many conventional loans, putting less than 20% down means you will have PMI. FHA financing also includes mortgage insurance.

Mortgage insurance is an additional expense, so of course we need to consider it. But paying mortgage insurance doesn’t automatically mean the loan is a bad financial decision.

The better question is what the entire scenario looks like.

If waiting several years to save 20% means continuing to rent while home prices change, the cost of waiting may be greater than the cost of mortgage insurance.

On the other hand, if you’re close to having 20% and buying isn’t urgent, waiting might make perfect sense.

We have to run the numbers.

More Down Isn’t Always Better

This surprises people.

Let’s say you have a significant amount of money saved. Putting every dollar available toward the down payment may lower your mortgage, but what happens after closing?

You still need savings.

Homes need repairs. Cars break down. Air conditioners apparently know exactly when you have spent all your money.

I would much rather see a homeowner enter closing with a thoughtful financial plan than put every available dollar into the house simply because someone told them that was what they were supposed to do.

Sometimes putting less down and keeping healthy reserves makes more sense.

Your Down Payment Can Affect More Than the Loan Amount

The amount you put down can affect your monthly payment, mortgage insurance, interest rate and overall loan structure.

That is why I like comparing several options rather than automatically choosing the largest down payment possible.

We might look at 5%, 10%, 15% and 20% down and compare what each one actually does to your payment and cash needed at closing.

Sometimes the difference is significant.

Sometimes it isn’t nearly as dramatic as a buyer expected.

Once you can see the numbers side by side, the decision becomes much easier.

Don’t Let 20% Keep You From Asking

If you’ve been waiting to buy because you don’t have a 20% down payment, don’t assume you’re not ready.

You may have more options than you realize.

The goal isn’t to put down a particular percentage because that’s what you’ve always heard. The goal is to structure the mortgage in a way that makes sense for your finances today and your plans for the future.

Before deciding you need another year or two to save, let’s run the numbers. You may decide waiting is the right choice, or you may discover you’re already in a position to buy.

Either way, you’ll be making the decision based on your actual numbers instead of an old mortgage myth.

If you’re thinking about buying a home and have questions about your down payment options, let’s talk!