Here's the thing nobody tells you about your down payment...

Pssst...you don’t actually need a 20% down payment. 

Crazy, right? 

In fact, a 2022 National Association of Realtors study found that the average first-timer’s down payment was around 6%. 

So if you were looking at a 250k house and madly trying to save 50k for the deposit — congratulations, because that just became more like 15k. Sounds a bit more doable, right? Maybe you’re already there? Or maybe it means you can now afford a better house than you thought, in a better area? 

And the news gets better — if you’re eligible for an FHA loan, or a low down payment conventional loan like this one, you could put as little as 3% down. 

It would be kind of gross of us not to tell you this... 

If you put down less than 20%, you may need to pay Private Mortgage Insurance (PMI). 

PMI gives your lender peace of mind because they’re protected if you stop making payments on your loan. It’s generally paid as part of your monthly home loan payment. 

PMI costs between 0.5 -2% of the entire initial loan amount, annually. So on that 250k loan, you’d be looking at around $2500 a year, or $48 a week.  

Now, the payments on a 250k loan with a 3.2% interest rate, fixed for 30 years are approx. $250 a week — add in your $48 for PMI and you’re still paying less than rent. And if property values are heading in the right direction, you’re even better off yet.  

And it gets better — once you’ve paid enough off the loan’s principal, PMI is removed — for conventional loans. If you get an FHA loan, your PMI stays for the life of the loan, but you can always refi to a conventional loan later to avoid that. 

So just how much do you need to pay off to have PMI removed? It’s pretty much what a ‘standard’ down payment would be — so 22% of the home’s original value. Yes, it’s a very precise number and it’s got everything to do with LTV. Ugh, another acronym — sorry! We actually wrote an article that breaks down all of these upper case jerks.  

Anyway, that rent you’re paying? You could actually be putting that towards paying off your own place, not your landlord’s. 

If we’ve made your wee heart skip a beat with this little secret, here’s what you should do now — 

> Research FHA lender criteria and low down payment conventional loans and see if you qualify.  

> Revisit your budget — now that you know it’s not 20%, how much sooner will you be ready? 

> Start a Pinterest board of indoor plants you can buy (and then accidentally forget to water)