In an attempt to better understand the thinking of home buyers, particularly as it relates to where and how they view mortgage down payments, Freddie Mac has released some interesting data. As the headline shows, many potential home buyers don’t fully understand the mortgage options available to them.

According to the study, almost a third of home buyers think that a 20% down payment is required. Another 30% of renters and 25% of existing homeowners simply don’t know how much of a down payment is required. One of the most compelling stats of all said that if 20% was the minimum down payment, it would delay their purchase and the other 30% said they wouldn’t buy if that was the rule.

Luckily, all of this can be demystified very quickly: a 20% down payment isn’t a rule, law or requirement. The 20% figure is the threshold by which borrowers don’t have to pay mortgage insurance. Otherwise, there are many options. From 5% – 50%, there are all kinds of approaches to down payments, but ultimately, it’s a personal decision dependent upon your objectives, finances and loan type.

When it comes to finding the money for your down payments, the study found that many assumed the down payment needed to come from personal savings. This, again, isn’t true. There are many options when it comes to acquiring the funds beyond simply having them in your bank account. Here’s how many pull together their down payment:

  • Gifts of money from friends/family (mortgage providers often need a signed letter from the friend/family explaining the willingness to share funds, if those funds haven’t already been deposited in the bank)
  • Many utilized retirement funds, though financial planners probably wouldn’t approve
  • Inheritance from the passing of a relative
  • Grants/loans from nonprofits or government agencies
  • Utilize proceeds from the sale of another property

Your mortgage provider can explain these options in more detail and walk you through how to utilize them while going through the mortgage process. Whatever the case, just because you don’t have the funds in your account, doesn’t mean that home ownership is impossible. The reality is that many loan options can accommodate low down payments.

Generally speaking, the most common loan options when purchasing a home include fixed rate mortgages, conventional mortgages, Federal Housing Administration (FHA) loans and jumbo mortgages. Ultimately, the objective of your mortgage provider should be to match your unique needs and financial circumstances with the right loan. Your down payment will be a key part of the mortgage strategy.

 If you’re ready to start uncovering your path to home ownership, contact us today.