A report showed that about one-third of home buyers in Washington State made down payments of 3.5% or less. A slightly higher percentage put down 20% or more. The rest fell somewhere in between.
Pop quiz: What was the median down payment among purchase loans in 2017? Like a lot of folks, you might think it’s somewhere near 20%. Actually, home buyers nationwide who purchased a property in 2017 put a median of just 5% down.
And according to an interactive map created by the Urban Institute (a Washington, D.C.-based research group), 33% of home buyers who used a mortgage loan to buy a house last year made a down payment of 3.5% or less.
These statistics provide further evidence to debunk the widespread misconception that all home buyers need to put 20% down when buying a home.
About a Third of Buyers Put Down 3.5% or Less
The Urban Institute, an economic think tank based in the nation’s capital, provides an interactive map tool that gives insight into a variety of home buying and mortgage trends. Among other things, it allows users to research the share of home loans for different down-payment sizes.
Using this tool, we discovered that 33% of home buyers in Washington State made down payments of 3.5% or less during 2017. That’s roughly one-third of all purchase loans. (At the time this article was published, in October 2018, the finalized data for 2018 were not available.)
If you looked at data for 2015 or 2016, the percentage of borrowers in that low-down-payment bracket would probably be lower. These days, there are more options available for borrowers seeking a down payment in the 3% range.
FHA loans used to be one of the only ways to accomplish that goal. Today, however, conventional loan programs offer down payments in that range as well (thanks to policy changes made by Freddie Mac and Fannie Mae).
Why Some Borrowers Choose to Invest More
This tool also revealed that, in 2017, 36.5% of purchase loans in Washington State had a down payment of 20% or more.
Some borrowers choose to make a larger upfront investment, and for a couple of reasons:
- They do it to reduce the loan amount, thereby reducing the size of their monthly payments.
- They also do it to avoid paying for mortgage insurance, which is usually required when the loan-to-value ratio rises above 80%.
But many home buyers in Washington can’t afford to put down 20% on a home purchase. Thankfully, there are programs available that require a much smaller investment from the borrower.
Here are three examples of financing options with a lower down payment:
- Conventional 97% financing: Using a conventional (non-government-backed) mortgage loan, eligible home buyers in Washington State could make a down payment as low as 3% of the home’s value. That’s a higher level of financing than in years past, which is good news for borrowers.
- FHA 96.5% financing: The Federal Housing Administration (FHA) loan program requires a minimum investment of 3.5%, with a maximum loan-to-value ratio of 96.5%. Borrowers who want to use that option must have a credit score of 580 or higher, as per HUD guidelines.
- VA 100% financing: If you happen to be a military member of veteran, there’s a good chance you could qualify for a VA-guaranteed home loan. This program offers financing of up to 100%, which eliminates the need for a down payment altogether.