Do I Need 20% for a Down Payment? What First-Time Homebuyers Should Know

No. You do not necessarily need a 20% down payment to buy a home. That's one of the most common misconceptions we hear from prospective first-time homebuyers. And it's an important one to clear up, because if you're looking at a $400,000 home and think you need to save $80,000 before you can even begin, homeownership can feel impossibly far away.

Depending on the mortgage program and your individual qualifications, you may be able to purchase a home with considerably less than 20% down. Some qualified buyers may even have access to programs requiring little or no down payment. But there's a second part of this conversation that's just as important:

Your down payment isn't the only money you'll need to buy a home.

How Much Do I Actually Need to Save?

That depends on you, the property you purchase and the mortgage program you use.

In addition to your down payment, buyers may need funds for expenses such as:

• Home inspection and other due diligence
• Lender and closing costs
• Attorney expenses
• Prepaid taxes and insurance
• Moving expenses
• Immediate repairs or purchases after closing
• An emergency cushion for the unexpected

That's why we don't like to give buyers a magic savings number before they've spoken with a lender. Two people buying similarly priced homes may have very different financing options and very different amounts of cash needed to close. The goal isn't simply to save "20%."

The goal is to understand what buying a home would actually look like for you.

"But I Don't Think My Credit Is Good Enough"

This is another concern we hear all the time. Sometimes people put off speaking with a lender because they're embarrassed about their credit score.

Please don't be. A good lender has seen all kinds of financial situations.

Talking with one doesn't mean you're committing to buy a house next month. It may simply give you a starting point. If your credit needs work, a lender may be able to explain what is affecting it and what steps could potentially put you in a stronger position to qualify.

Maybe you're ready sooner than you thought. Maybe you need six months. Maybe you need a year. Knowing is far more useful than wondering.

What About Down Payment Assistance?

Massachusetts has programs designed to help eligible homebuyers with one of the biggest hurdles to homeownership: the upfront cash needed to purchase a home.

For example, MassHousing currently offers down payment assistance of up to $30,000 for eligible first-time homebuyers purchasing in Massachusetts. The assistance is paired with a MassHousing first mortgage, and eligibility and program terms apply.

Down payment assistance programs, eligibility requirements, income limits and loan terms can change. Rather than trying to determine online whether you qualify, talk with a lender who works with these programs and can review the options currently available to you.

See Current MassHousing Down Payment Assistance Programs

That way, you're looking at today's information rather than something you found online that may have been accurate two years ago.

Homebuyer Education Can Be a Great First Step

You don't have to wait until you're ready to make an offer to start learning about the process. First-time homebuyer education classes cover topics such as budgeting, credit, mortgages, making an offer and what to expect throughout the purchase.

MassHousing actually requires an approved homebuyer education course for buyers using its mortgage and down payment assistance programs.

Even if you aren't sure which mortgage program you'll eventually use, learning how the process works can make buying a home feel considerably less intimidating.

You Don't Have to Be Ready Before You Ask for Help

This may be the most important part. You don't need perfect credit. You don't need to have 20% saved. And you don't need to understand mortgages before talking with someone about buying your first home.

That's what we're here for. When we meet with prospective first-time buyers, we're not expecting them to arrive ready to make an offer.

• Sometimes the next step is getting pre-approved.
• Sometimes it's improving credit.
• Sometimes it's building savings.
• Sometimes it's taking a homebuyer education class.
• Sometimes it's simply learning enough about the process to realize that buying a home might actually be possible.

Start With Information, Not Assumptions

If homeownership is something you'd like to work toward, don't rule yourself out because of something you've heard about credit scores, down payments or how much money you "should" have saved. Find out what the numbers actually look like for you.

We can sit down with you, answer your questions, explain the buying process and connect you with a lender who can help you understand your financing options. You may be ready now. You may have some work to do first.

Either way, knowing where you stand gives you something much more useful than a guess: a plan.

If you’re ready to take the first step, check out these upcoming Homebuyer Education Classes.