Debunking the Biggest Reason You’re Not Buying a Home

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Did you know that nationally the buy/rent break-even point is only 2 years and 1 month? This means that in most cities in the United States you only need to live in that city for a little over 2 years for buying to be a better financial decision. Even if you plan to stay in a city for only 3 years, you might be better off owning a condo rather than paying your landlord. And even if you do decide to move after 2 years, you have the opportunity to put some extra money in your own pocket by renting your unit out.

So, what’s stopping you from buying a home and investing in real estate?

I bet it’s the down payment. That you think you haven’t saved enough. Well you’re not alone. Fannie Mae, who I’ve teamed up with for this series on homeownership, recently surveyed 1,000 millennials on homeownership. What they found is that the biggest reason for those who don’t own a home is that they believe they couldn’t afford the down payment—nearly 22% of respondents said this. On top of that, 10% don’t think they will ever be able to save enough for a down payment!

If a 20% down payment is what you have in mind, it’s easy to see why you would think that. The median price of a condo in Chicago in 2017 was $325,000, which means you’d have to save nearly $65,000 in cash before even contemplating buying a home. For many millennials, that’s a lot of cash.

But one the biggest myths in the personal finance world is that you need to save up for a 20% down payment to buy a home.

I have friends who have literally been saving for almost 10 years to save up for a 20% down payment on a home – but you know what happens when you do that? Home prices go up and so does the 20% down payment you need. Unfortunately, many of them have now missed out on not only real estate investment growth opportunities but also the opportunity to buy homes. They’ve simply been priced out.

I put down 5% and if I had waited until I had 20% I would have had to pay at least $150,000 more for my home. And I could have put down even less. You might only need a 3% down payment.

You could only need 3% for a down payment

Fannie Mae found that 64% of millennial renters were completely unfamiliar with programs allowing down payments in the 3-5% range. That’s a huge knowledge gap!

By taking advantage of programs that allow for down payments of 3%, to buy that same $325,000 property in Chicago you only need to save about $10,000 for a down payment. That’s a lot less than the $65,000 you would need at 20%. Buying your first home is one of the most important financial decisions you will make in your life, so do your research and shop around for a mortgage with a low-down payment option you are comfortable with and that’s best for your own financial situation.

For borrowers with good credit, homeownership can be more achievable with affordable options designed for them. With as little as 3% down, you could own a home and pay yourself instead of your landlord.

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  • Comment Author image blank Peerless Money Mentor says:

    Hello Grant,

    Thanks for debunking this myth! I hear it a lot on the podcasts I listen to. While I would love to put down 20% to avoid PMI, I don’t have that kind of money lying around.


  • Comment Author image blank John Smith says:

    Or: join the military. Wife and I are both Veterans. We just bought a $500K house with zero downpayment using a VA loan.