Navigating the Down Payment: Real Stories from Real Buyers

Whether you’re a first-time homebuyer or a seasoned veteran of the real estate world, deciding on your down payment amount can sometimes be confusing. Should you drop a full 20% on a house and avoid mortgage insurance, even if it nearly wipes out your savings? Have you been putting money away for what feels like forever, but you still aren’t sure if you have enough? And what about those closing costs or repair expenses? How much will they set you back?

While these are all questions that your real estate agent and lending professionals can help you answer, sometimes seeing what different home purchases look like can be helpful, too — so you can hear how other people made their dream of homeownership finally happen.

We spoke to some real-life buyers to find out not only how they came up with their down payment, but also how they decided on the amount, as well as some of the obstacles they had to overcome along the way. We’ve changed some names for the sake of privacy, but these are true stories from real people who’ve purchased homes in the last few years.

A little background on the down payment

Jessica Sanchez, Director of Underwriting & Loan Management at HomeLight Home Loans, says it’s important to consider the bigger picture when it comes to your down payment. “Basically, the more you put down, the better loan terms you’ll get,” she says.

“With a larger down payment, you’ll have a lower monthly payment, a potentially lower interest rate, and either a lower or no mortgage insurance payment.”

Sanchez says that buyers who can come up with a higher down payment will have more loan options, as lenders are generally more eager to consider a buyer willing to invest a large sum of their own money. “If a buyer puts a larger down payment and actually has some skin in the game, that’s a lower risk for us as lenders,” she explains. “With a large down payment, the home already has equity, which means a lender is more likely to fully recoup their loan if something unforeseen happens and the buyer defaults.”

That being said, there are also myriad programs available for buyers, with down payments as low as 3% for first-time homebuyers, and a multitude of state and city programs that offer assistance to new buyers. “If you’re a first-time buyer, which means you haven’t owned a home in at least three years, you can put down as little as 3%,” Sanchez says.

“There are also various government and city programs that provide down payment assistance. First-time buyers should research their options and see if they qualify for any of them.”

If you’ve had some credit issues in the past, don’t think your only option is a large down payment. “Generally speaking, a lender is going to look at your current credit situation,” says Sanchez. “If you’ve had some credit issues in the past but have good credit now, they are mostly going to focus on that.” Sanchez adds that major credit setbacks such as a short sale or foreclosure means a buyer will most likely have to wait at least seven years before being able to qualify for a new loan.

No matter what your situation might be, taking a look at how other people navigated their down payment and purchase might help you to determine not only how much of a down payment you should make, but also some pitfalls and mistakes to avoid. Check out what these buyers had to say about their experiences.

First-time homebuyers

Northern California residents Tarra and Chel had actually put their homebuying plans on the back burner when they came across their recently purchased home.

“We were actively house-hunting at one point,” says Tarra, “but when my federal student loan payments suddenly went from less than $100 a month to nearly $500, I took a close look at our finances, and we decided to wait.”

But in early 2020, not long after they’d made the decision to hold off on buying, a house popped up for sale in Sacramento. “The Realtor we’d been working with found out about the house, which was just coming on the market. We went and looked at it and immediately put in an offer.”

The house was listed at $230,000, and the couple put in an offer of $240,000, which was accepted by the sellers with no counter-offer. “The sellers were more concerned with finding the right buyer than they were about making a profit,” says Tarra. “They cared about the property, and luckily, they decided we were a good choice.”

The down payment was just under $8,000, and they were gifted $10,000 from Tarra’s mother, which went toward both the down payment and closing costs. They decided to go with a conventional loan and opted not to seek any kind of buyer assistance through a first-time buyer program.

“We preferred a conventional loan over some of the other programs, primarily because there were less hoops to jump through,” Tarra says. The house itself also needed some work, and both Tarra and her spouse, as well as the sellers, were concerned about loan programs that might require additional documentation that could slow down the sale.

Due to the timing of finding a house when they weren’t really looking to buy, they hadn’t saved much and assumed the $10,000 gift would be sufficient … which turned out to be one of the couple’s biggest misconceptions. “We had only saved for about six months, and we didn’t really have enough for the purchase. Closing costs were much more than we anticipated,” says Tarra. “We didn’t know all the things we would have to pay for, or the ins and outs of what was required.”

During escrow, they also found that there were some fairly major repairs needed to the home, such as the roof and bathroom flooring. Fortunately, they were able to negotiate with the sellers for repairs, and they got the keys to their new home at the end of February 2020.

“We really got lucky,” says Tarra. “Coming across this house was totally unexpected, and things moved very quickly.”

Advice to other buyers: “Save up more than you think you will need!”

Recession regroup

The 2008 recession hit Nevada homeowner Brian very hard.

“I was living in California, and it just killed me,” he says. “We had to do a short sale on our home and start from scratch.”

After the sale of their home in the late 2000s, Brian and his family rented for several years in order to rebuild credit and save. As things began to improve for them financially, they decided to cut ties with the high cost of living in California, and in 2018, they purchased an RV.

“Our plan was to live in the RV while we traveled around the United States, looking for that perfect retirement spot,” Brian says. Credit issues lingered, however, and negotiating the purchase of his RV proved difficult. “I got turned down flat for a loan at all the lenders I tried, as well as at the dealership,” he says. “The price was $225,000, and I ended up having to put down $100,000, or 44% of the price, in order to get the bank to agree to finance the remainder.”

One perk of RV loans, which are a hybrid between a mortgage and an auto loan, is that although they have many of the same requirements as a home loan, they are more streamlined, and there is no mortgage insurance.

“Tax-wise, RVs are considered a second home,” he explains. “You can get a loan of up to 20 years, which I did in order to reduce our payment, but the process is more like a car loan.”

After leaving California, they parked themselves and their RV in Nevada for the winter. In early 2019, Brian came across a four-bedroom home for sale nearby.

“My mother-in-law was still living in California, and I was paying the rent on her apartment, which was $1,500 a month,” he says. “We wanted to move her closer to us, and the house I found was priced at $219,000. With a 10% down payment and 15-year mortgage, payments were just $1,700 a month.”

While he couldn’t come up with a 20% down payment and avoid mortgage insurance, Brian said he was able to buy points to lower the interest rate, making the payment easily affordable. Once he closed on the house, his mother-in-law joined the family in Nevada.

For both purchases, Brian used money he’d saved over the last several years, as well as borrowing from his 401(k). “I had been saving as much as possible since the recession in preparation for retirement,” he says. “I’d been maxing out my 401(k) every year, and pulled the down payments from that fund. I’m now repaying myself with interest.”

While two big purchases and accompanying down payments left him feeling tapped out financially, he wasn’t quite done yet.

“My sister, who lives in Alaska, contacted me because she was about to be evicted from her apartment,” he says. “I’d already been helping her quite a bit with expenses, and I thought that rather than paying rent on another apartment, I’d see if I could find a place to buy, both to help her and as an investment.”

He found a house in Anchorage for $90,000 and bought it for his sister. “The last two purchases had cleaned me out, but I put down as much as I could so my sister would have a reasonable payment,” he says.

The down payment for this final purchase was 10%, or $9,000, plus closing costs.

While the current global health crisis has kept the family in Nevada, rather than traveling, Brian said he’s happy with how things have worked out with their purchases.

“It took a long time to rebuild my credit and be able to buy again,” he says. “And then when we did buy the RV with the intent to travel and find a place to build a retirement home, circumstances got in the way. But I’ve been able to help my family despite all that.”

Advice to buyers: “Try to save up enough to put down 20% so you don’t have to pay mortgage insurance. Also, consider the payment amount, and make sure it’s something you can manage if things were to change financially somewhere down the line.”

Real estate veteran

For New Jersey local Jane, her recent home purchase was pretty much business as usual.

“This is the fourth house I’ve bought,” she says. “I started with a condo when I was in my 20s and have since bought and sold two other homes.”

Jane and her fiancé, Dave, decided to buy a home together, closing on their new purchase in late August 2020. “My youngest son recently graduated from high school and is getting ready to go to college, and we didn’t want to stay in the town we were in,” she says. “Our current town is pretty densely populated, and we really wanted more space.”

They found a home in Mendham, New Jersey. The purchase price was $640,000, and they put 10% down ($64,000).

“We do have mortgage insurance, but with interest rates being so low, it’s not really an issue for me. I didn’t want to tie up too much cash in this purchase, considering I have two sons in college now, and we really don’t know what might happen in this economy.”

The couple also still owns the homes they lived in prior to this purchase, and Jane explains that once they sell those homes, which they plan to do later this year, they’ll likely pay down a large portion of the new mortgage.

Saving for the down payment wasn’t an issue, as they’d both been putting money away for years. “I always max out my 401(k),” she says, “and we are closer to retirement than not, so we’ve had time to build up our savings.”

While she’s in a different position than first-time buyers, or even many buyers in general, she is quick to point out that it wasn’t always this way. “People say, ‘oh, you’ve done so well,’ but I’m fifty years old. I’ve had more time to work and save. When I was in my twenties, I struggled, too,” she says.

Advice to buyers: “Don’t think of the down payment on a house as just spending the money you’ve saved. Real estate is an investment, so when you’re putting that money into a house, you are investing in something that will grow.”

Header Image Source: (Greg Rivers / Unsplash)