Putting 20% down on a home is ideal, but first time home buyers can use these tips to make a smart home purchase without a large down payment.
As a first time home buyer, the prospect of saving 20% of the home price as a down payment can feel daunting at best and impossible at worst. This is especially true near large cities and for young people starting families.
Lenders prefer a 20% down payment and this is the magic number that waives mortgage insurance (PMI), saving you money in the long-run. In fact, we believe any second or subsequent home purchases should take advantage of a 20% down payment.
If home ownership is a goal, saving 20% can take years. By the time you save your target down payment, home prices may have gone up, forcing you to save even more.
A surprising number of smart, financially savvy people in our circles did not put 20% down on their first home. Choosing to put 3-5% down on your first home in order to prioritize investments and simply get your foot in the door of the real estate market may be a great option for you. If you can stick with the following indicators, you can still make a smart home purchase without putting 20% down.
You may put less than 20% down if:
- This is your first home purchase
- You plan to be in the home at least 5-7 years
- You will be spending no more than 25% of your gross income on your monthly mortgage payment
Check out the video below for a discussion on just how big your home downpayment should be!
