Debunking the 20% Down Payment Myth: Why Waiting Might Cost You More
"Make sure you save 20% for your down payment. That way you won't have PMI."
That's great advice, right? Actually, no! Don't show this to your parents if they're the ones who told you this… just kidding, go ahead and show them! As a seasoned mortgage professional with over 16 years of experience, I've seen firsthand how this myth can hurt potential homebuyers.
The 20% Down Payment Myth
I hear it all the time: the belief that you need to save 20% for a down payment to avoid Private Mortgage Insurance (PMI). While it’s true that PMI can add to your monthly mortgage payment, the cost of waiting to save 20% can be much higher.
Consider my clients who bought homes in 2013. Today, they have $300,000 in equity. If they had waited to save 20%, it would have taken them six years longer to buy a home. In those six years, they would have missed out on significant equity gains.
Real-Life Examples
Let’s look at those who bought homes three to five years ago. Many of them have gained $50,000 to $150,000 in equity despite starting with little to no down payment and utilizing down payment assistance programs. As a theoretical example, PMI may cost $50 to $250 per month depending on variables such as loan amount and FICO credit scores but pale in comparison to the wealth they've built through homeownership.
The Housing Market Reality
The reality is there’s a shortage of homes across the country. Even with higher interest rates, which are at their highest in 25 years as of 2024, if you can afford to buy a home, you should seriously consider doing so. There has never been a time in U.S. history where home values are not higher decade after decade and that is not even considering the importance of the stability, security, confidence and emotional aspects of home ownership.
Data Speaks Volumes
Numerous studies, including those by the National Association of Realtors (NAR), show that homeowners significantly outperform renters in terms of wealth accumulation. On average, homeowners have over $250,000 more in assets compared to renters. The data is clear: owning a home is a key driver of wealth.
The Bottom Line
Saving for a 20% down payment is not necessary and can actually hinder your financial growth. If you’re able to buy a home now, even with a smaller down payment and the added cost of PMI, the long-term benefits far outweigh the short-term costs.
Need More Information?
If you have questions or need more data, feel free to reach out. We can provide the information you need to make an informed decision about homeownership. Remember, waiting to save for a larger down payment can cost you in the long run. The numbers don’t lie.
So, don’t let the 20% myth hold you back. Take the plunge into homeownership and start building your equity today. I stand by this advice and have the data to back it up.
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