Purchasing a home is a major decision, and it could be the most expensive financial transaction somebody ever makes. Therefore, it is important to get this right. One of the biggest hurdles for a new homeowner is coming up with enough money for the down payment. A lot of people believe they require 20 percent down to purchase a home. Saving this amount of money can be overwhelming, and some people are wondering, is this really necessary? There are several key points to keep in mind.
Putting 20 Percent Down Is Not Really Necessary
When taking a look at the prices of homes, putting 20 percent down can seem like a pipe dream for most people. Fortunately, putting this amount of money down is not actually necessary. It is possible for people to qualify for a loan with significantly smaller amounts of money. For example, there are some lenders who might be willing to provide a loan to a first-time homebuyer for as low as 3.5 percent. Even though this is still a lot of money, it is not nearly as much as 20 percent down. Potential homeowners need to do their homework and work with down payment assistance programs to make this process easier.
Why Do People Put 20 Percent Down?
So, where does the idea of putting 20 percent down actually come from? Many homeowners decide to put 20 percent down because they would like to avoid something called private mortgage insurance, or PMI. This is an insurance policy that potential homeowners may be required to purchase on behalf of the lender to protect the lender in the event of a default. When homeowners reach 20 percent equity in their homes, they can ask for PMI to be canceled. Because most homeowners do not want this additional expense, they may feel compelled to put 20 percent down.
Find The Right Home Loan
Potential homeowners should not feel like their dreams are derailed simply because they need to put 20 percent down. It is possible to qualify for a home loan with significantly lower down payment percentages, but every homeowner has to assess his or her options. That way, they can make the best financial decision for their individual situation.
In the current economy, there are a lot of millennials who are thinking about buying a home; however, the price of homes is rising quickly. It can be challenging for millennials to save the money they need to buy a home. When this is combined with other monthly expenses they have, millennials might be financially unprepared to buy a home. 
There are many people who are currently looking to purchase a home while interest rates are relatively low; however, there are many homeowners who feel like they do not have a strong level of financial understanding when it comes to the process of purchasing a home.
If you are planning on purchasing a home in the near future, you need to make sure you have enough money saved up. While there are a lot of expenses that go along with purchasing a home, the biggest expense is the down payment.
For those who are looking to buy a home, they know that this is one of the most exciting experiences in the world. There is something special that comes with looking at a bunch of homes and envisioning a life there. On the other hand, the prospect of saving 20 percent of the home’s value to put down might seem overwhelming. Fortunately, there are a few creative ways that people can save up enough money to purchase their starter dream home.
If you are thinking about purchasing your first home in the near future, then you need to be aware of the costs that you are going to take on. When you are looking at the cost of a home, it is very tempting to focus on the sticker price of the home. Even though the down payment is going to be the largest check you are going to write, this is not the only cost that you are going to pay.