One of the most persistent misconceptions I hear about buying a home is that you need a 20% down payment.
You often don’t.
According to the National Association of Realtors, the median down payment among first-time homebuyers is 10%. And depending on the buyer and the loan program, the minimum can be considerably lower. Some conventional loan programs allow down payments as low as 3%, while FHA financing may require as little as 3.5%.
Of course, a smaller down payment isn’t automatically the right choice for everyone. Your monthly payment, mortgage insurance, cash reserves and other financial considerations all matter.
But if you’ve been waiting to buy because you think you have to save 20% first, it may be worth finding out what you actually need.
And This May Be an Especially Interesting Time To Do It
There’s another part of this that doesn’t get talked about nearly as much.
Five years ago, a buyer might have qualified for a perfectly good FHA or low-down-payment conventional loan and still had a very difficult time buying a home. The problem wasn’t necessarily the financing. It was the competition.
When sellers were receiving multiple offers — including offers from buyers with large down payments and sometimes all cash — someone putting 3%, 3.5% or 5% down could have a difficult time getting an offer accepted.
The loan programs existed. Having a realistic opportunity to use them was sometimes another matter.
Today’s market is different. In many parts of the San Fernando Valley, Simi Valley and Conejo Valley, buyers are seeing a less frenzied market than they did several years ago. With fewer buyers competing for many homes, sellers may be more willing to consider different types of financing and look at the strength of the entire offer rather than simply gravitating toward the buyer with the largest down payment.
That can create an interesting opportunity for someone who thought homeownership was still several years away.
Your First Home Doesn’t Have To Be Your Dream Home
There’s another hurdle I sometimes see with first-time buyers: the home they can afford today may not look like the home they ultimately want. And that’s okay.
A first home might be a condo, a townhouse, a smaller house or an older home that hasn’t been beautifully remodeled. It doesn’t have to have the big yard, gorgeous kitchen, extra bedrooms and every feature you hope to have someday.
Sometimes the important thing is finding a home that works for your life and your finances right now.
I have a client I first worked with about ten years ago who did exactly that. He started with a very small condo when he was young and beginning his career. As his circumstances changed, he was eventually able to move into a larger townhouse. Instead of selling the condo, he kept it and rented it out.
Later, after he married and had a child, his family’s needs changed again. They moved into a single-family home — and he kept the townhouse too.
Today, he owns his family home along with the two properties he purchased earlier in his life. That strategy certainly isn’t right — or financially possible — for everyone. Becoming a landlord comes with responsibilities and risks, and not everyone will qualify to purchase another home while keeping the one they already own. But I think there’s something worth learning from his story.
He didn’t wait until he could afford his ultimate home to become a homeowner. He bought the home that made sense for him at that stage of his life.
Over time, those stepping-stone homes became assets of their own.
What If You’re Waiting for a “Better” Market?
There’s a certain irony in waiting for the housing market to become easier.
If mortgage rates eventually come down enough to bring more buyers back into the market, you probably won’t be the only person who notices.
More buyers can mean more competition — particularly for the more affordable homes that first-time buyers are already seeking.
Five years ago, buyers had wonderfully low mortgage rates. But many also had to contend with bidding wars, multiple offers and sellers who could choose among exceptionally strong terms.
Today’s buyers face higher financing costs, but in some cases they have something buyers didn’t have much of then: less competition and more opportunity to negotiate.
There is almost never a real estate market where everything is working in your favor at the same time. That’s why I don’t think the right question is simply, “Is this a good time to buy?”
A better question is:
Does buying make sense for me right now?
That depends on your income, savings, monthly budget, plans for the next several years, financing options and the homes available in the areas where you want to live.
You May Be Closer Than You Think
If you’ve been assuming you can’t buy a home because you don’t have 20% saved, don’t let that assumption make the decision for you.
Talk with a knowledgeable lender and find out what financing may actually be available to you. Then we can look at what your budget actually buys in the San Fernando Valley, Simi Valley, Conejo Valley or other nearby communities — not just what you’ve seen online.
You may find out that waiting is still the right decision. Or you may discover you’re considerably closer to buying your first home than you thought.
Thinking about buying a home? Visit my Get Ready to Buy a Home page for more information about preparing for the process, or contact me and we can talk about what you’re looking for and whether today’s market might offer an opportunity that makes sense for you.
Have Questions About Your Next Move?
I’ve been having a lot of these conversations lately. If you’re wondering what today’s market means for your plans, your options, or a move you’re considering, I’d be happy to help.
Janey Bishop
Broker | DRE #01838769
(818) 570-1144
[email protected]
SRES, CPE, CPRES, RCSD
Senior Real Estate Specialist
Certified Probate Expert
Certified Probate Real Estate Expert
Real Estate Collaborative Specialist – Divorce
Janey Bishop is an independent real estate broker serving buyers and sellers throughout the San Fernando Valley, Simi Valley and Conejo Valley areas of Los Angeles and Ventura Counties. DRE 01838769.
