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Peoples State Bank

Breaking the 20% Down Payment Myth

Making a Home Purchase Affordable
  • Mortgages
  • December 13, 2019
  • Brandon Karaba

There’s a long-standing myth that you need to pay a 20% down payment when purchasing a home. Yes, a 20% down payment is a benchmark that mortgage lenders use, but a third of Americans put 5% or less down when purchasing a home.

For example, the United States Department of Agriculture is a government agency that helps home buyers get approved. The USDA assists mortgage lenders with home purchasers who want to pay less than 20% down. They do that by guaranteeing a portion of the balance. Ultimately, you can put much less money down with an USDA-approved loan, as little as 3.5% down. Other restrictions may apply.

Traditionally, mortgage lenders have asked for 20% down as a way to ensure the home buyer is invested in the property. There are other reasons why mortgage lenders have asked for that much down. It helps offset their risk if you default on the purchase. It gives lenders the ability to offer a lower interest rate to borrowers. And it helps reduce the amount you need to purchase, keeping your loan-to-value (LTV) ratio lower.

Determining what amount you’ll need to put down on a home purchase depends on the type of home loan you get, along with lender requirements. Your credit score, and debt-to-income ratio will also determine what amount you’ll need to pay.

While a lower down payment may help you get into a home, you need to be aware that you’ll likely have to pay a mortgage insurance premium (MIP). Mortgage insurance is paid by you but protects the mortgage lender from losses if you default on the loan. 

The money for a down payment can come from:

  • Your savings
  • The profit you make on the sale of another home
  • Gifts or grants from family and employers

In addition to USDA mortgages, there are other mortgage options available from the Veterans Administration, Wisconsin Housing and Economic Development Authority, and the Federal Housing Administration.

Peoples State Bank offers a variety of terms and mortgage products to meet our customers’ needs. For more information or to get started with a pre-approval, contact Peoples State Bank at 888.929.9902 or

Brandon Karaba
  • Mortgage Lender, Assistant Vice President
  • NMLS# 412960

Brandon has nearly 10 years of mortgage lending experience, plus another six years in banking at Peoples State Bank. He brings a vast toolset of financial knowledge to all his mortgage customers, providing them a great customer experience. Brandon works hard to find the right mortgage product for his customers, making sure you are comfortable throughout the process, and answering all your questions.