Should You Follow the "20 Rule" When Buying a CT Home in 2025?

 Posted on January 21, 2025 in Real Estate Law

If you are a new homebuyer, you may be wondering how much money you will have to come up with as a down payment. While there are certain "rules" regarding down payments, there really is no "one size fits all," and your down payment will depend on a variety of factors. While 20 percent down may be the "typical" amount, many homebuyers can buy a new home with as little as 3 percent down – or, in some cases, nothing down.

So, how much money "should" you put down on your new home? A real estate attorney can be your best resource when you are considering purchasing a home, as he or she will have information on many different aspects of home buying. Speaking to a knowledgeable Stamford, CT real estate attorney who can help you determine the right down payment amount while ensuring you are aware of all your options can be helpful.

How Much Money Should You Put Down on Your New Home?

If you can afford it, putting 20 percent down is a good idea, as it will immediately reduce the amount of your loan, lowering your monthly payments. However, if it will completely deplete your bank account to put 20 percent down, you might better be served by keeping some money in reserve for home repairs, living expenses, or emergencies. The amount required for a down payment may depend in part on the type of loan you are acquiring.

Although 20 percent might be the historical standard, you may be able to get by with a much lower down payment. Since at least 75 percent of all home buyers require a mortgage loan to purchase a home, you are hardly alone in this determination. The "average" down payment for a home in 2024 was about 9 percent of the purchase price.

Loans That Require a Lower Down Payment 

A conventional loan's down payment requirement can vary depending on the loan source, the home buyer’s credit rating, whether the house is selling for market value, and the current interest rates. The minimum down payment is usually 3 percent. A conventional loan can have a fixed or adjustable interest rate. FHA (HUD) loans for those with a credit score of at least 580 typically require a 3.5 percent down payment—or as much as 10 percent for those with a credit score below 579.

Fannie Mae and Freddi Mac mortgage loans usually require a 3 percent down payment.  VA loans for veterans often require no down payment, and the same is true for USDA loans. A "Jumbo" loan generally requires a down payment of 5-10 percent because the loan amounts are typically higher. Those who are financing a second home or an investment property can expect to pay between 10 and 20 percent as a down payment.

Issues Associated with a Zero or Low Down Payment Requirement

While a homebuyer may be able to get by with no down payment or a very low down payment, this may or may not be the right choice. A larger down payment reduces the risk for the mortgage lender, which usually results in better interest rates. This means the home costs considerably less over the long term. Putting 20 percent or more down on a home may eliminate the need for private mortgage insurance, which can also save money.

A larger down payment gives the homebuyer a better debt-to-income ratio, meaning a better credit score. It can also allow homebuyers to buy a more expensive home. Finally, a larger down payment also reduces monthly payments, allowing the homebuyer to budget more efficiently. Smaller down payments can help homebuyers enter the housing market sooner, benefit from increases in property values, and have money left over for renovations and repairs.  

Contact a Fairfield County, CT Real Estate Attorney

Having a Stamford, CT real estate attorney from Law Offices of Daniel P. Weiner by your side can make all the difference in your home-buying transaction. You are much less likely to make mistakes that can take a long time to recover from when you have an experienced real estate attorney as your advocate. Call 203-348-5846 to schedule your free consultation.