You know how the conversation goes…
PERSON: “I’m thinking about buying a house.”
OTHER PERSON: “Oh yeah, start saving for that down payment!”
FRIEND: “We’d like to buy a house.”
OTHER FRIEND: “Are you looking?”
FRIEND: “No, I need to save up for the down payment first.”
And in every case, what is that down payment number everyone has on their mind? You guessed it. Twenty percent.
Most people still think that to get a loan or a good rate you have to have twenty percent down. So they don’t look. Or they wait. And waiting can mean missing out on current opportunities that might just be better than the ones available after you finally saved up for that twenty percent down payment.
The Origin of the Myth
Up until the mid 50’s, down payments were indeed, as a rule, twenty percent. But banks eventually realized that rising home prices made it ever more difficult for people to put such a high percentage down. A number of other innovations like PMI and second mortgages began to make lower down payments possible.
As the market has become healthier, lower down payments are very possible again. If you happen to have twenty percent in your pocket, it might be a good idea to put it toward your down payment, but not necessarily. The reality is that fixating on twenty percent can be a decision you regret.
A mortgage unlocks so many benefits for you as a homeowner, from tax deductions to building equity for the rest of your life. You might not need to save anything. You might be able to start now.
So, talk to someone who can show you how to use a mortgage to create leverage toward building financial independence. If you’d like to speak with us, just give us a call at 202.899.2603!