You don’t need 20% down to buy a home

Don’t mix your dark and white clothes in the laundry. Don’t chew with food in your mouth. And don’t buy a house without putting 20% down. You’ve probably heard this rule of thumb when it comes to buying a home and maybe it’s why you don’t own a house yet. We’re here to tell you it’s not true.

Even though you might feel like millennials have made renting more popular as a result of their credit and school loan debt, the sentiment is still to buy. Recent data from the National Association of Realtors indicates that eight out of ten non-homeowners still believe it’s part of their American dream. So what’ stopping them? The same study also cites that most non-homeowners believe the wrong things about how much you need to put down to buy a home.

While there are some benefits to sticking to the rule, there are some benefits to paying for less. You know what is required? Only about 3%, depending on the type of loan you get. And depending on your financial situation, you may benefit more from paying that minimum than by sticking to a 20% down rule that doesn’t apply anymore.

Why is 20% down such a strong myth? The number one reason is that paying that much down does mean you don’t have to pay private mortgage insurance. You could save a lot of money over the life of your mortgage if you avoid it. On the other hand, paying the 3% down allows you to do a few other things with the money:

1. Invest

Invest the money in the stock market, renovating your home, or yourself. Increase the value of your home by investing in a little redecorating or renovating, depending on your budget. Or invest it in the stock market. Nothing crazy, of course. Try an index fund if you don’t want to play the market. And finally, what about that business idea you’ve been sitting on? Use the money to fund yourself. Try something new. Owning a house is part of the American dream. So is owning a business

2. Buy while the buying’s good

The money you might be saving on something like private mortgage insurance could look like nothing compared to what you could save by buying right now while prices are good. Don’t wait years saving up for the mythical 20% when you could buy your house now and enjoy the benefits of a buyer’s market. And yes, it’s a buyer’s market: according to economists. They expect construction of single-family houses to rise sharply in 2018, based on building permit applications. The median estimate has single-family housing starts rising about 8% in 2018, to roughly 912,500 new houses. It’s never been a better time to buy, in other words.

3. Save it.

I know, I know. You’re not good at saving. Most of us aren’t. According to the Pew Institute, most Americans don’t have more than %1,000 saved in the bank. And that costs you down the road, when emergencies, medical costs, and other unforeseen expenses make things more expensive. Give yourself a little cushion and a little piece of mind by saving the amount you might have put towards the mythical 20%.

About Christian Nossum

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