Listen: At Home on the Lakeshore | UnitedOne Credit Union

Podcast: Debunking the 20% Down Payment Myth for Homebuyers
Authored By: UnitedOne Credit Union on 1/3/2024

The age-old belief that a 20% down payment is a prerequisite for buying a house has lingered as a significant barrier for many aspiring homebuyers.

However, the reality is that this widely accepted notion is more myth than mandate to achieving the American dream of owning a home.

The Local Home Loan Experts at UnitedOne Credit Union discuss various programs and alternatives that help make it possible to purchase a house without needing a 20% down payment on the latest edition of their podcast, At Home on the Lakeshore.

“You can get in with as little as 3% down,” said UnitedOne Mortgage Specialist Julie Peot, NMLS # 441412. “Actually, one of the newer programs we are offering is USDA, or even VA, are 0% down. It’s kind of an old myth now that you need the 20% down.”

There are many challenges facing first-time homebuyers today to save for a house given the rising costs of higher education, rent, and groceries. Listening to elders share the tales of how things were back when they purchased their first home will only put unnecessary doubt for those in the market for the first time now.

“Don’t stress out. Talk to us,” said UnitedOne Mortgage Specialist Kari Johnsrud, NMLS # 441414. “We’ll walk you through and let you know with what you have, and where you’re at, what you can afford. That’s what we’re here for.”

There are many invaluable resources for prospective homeowners to explore.

“There is one program that is called DPP, which is a down payment assistance program,” said UnitedOne Mortgage Specialist Linda Serrano, NMLS # 441416 . “It is actually a grant. With this grant you do not have to pay this money back if you live in the home for five years or more.”

There is a household income threshold in order to qualify for DPP. The grant value changes on an annual basis. In 2023, the grant was $10,000.

“You would have to contribute $1,000 of your own funds and then you would get $10,000 for free, so that’s one other really good program we have,” Serrano said.

Another option for first-time homebuyers is through the Wisconsin Housing and Economic Development Authority (WHEDA), which offers an Easy Close down payment assistance program.

“They will assist with down payment and closing costs,” Peot said. “Taking out that first mortgage with them you need 3% down, but the Easy Close can come through and cover that down payment plus an some additional.”

If you’re looking to live in a rural setting, you can explore a USDA loan with a no down payment option.

“USDA is a rural development program,” Peot said. “It’s more of your outlining townships and smaller cities. Those addresses are eligible for USDA. … The city of Manitowoc. The city of Sheboygan. They are not eligible, but just outside those city limits some of those houses can be eligible.”

Creative financing solutions can also be used for a down payment, like using a vehicle as an asset.

“Let’s say they have a vehicle that’s no money owed on it, free and clear,” Johnsrud said. “We could take out a loan against that vehicle and use that money for down payment as well.”

The Department of Veterans Affairs (VA) offers loans with no down payment and not needing private mortgage insurance. It’s a great benefit for those that have served our country.

“With most programs if you don’t put 20% down, typically you have this private mortgage insurance that is added to your monthly payment,” Johnsrud said.

Other alternatives to help with a down payment could be a 401(k), tax returns, and a gift from a family member.

One of the most important things to remember as you prepare for the exciting process of becoming a homeowner is to track all the funds you will be using towards a down payment.

“Everything comes with a paper trail,” Peot said. “We’re going to ask, where did those funds come from? We have to be able to paper trail it.”

Ultimately, each prospective homebuyer’s situation is unique and why it’s important to speak with one of the Local Home Loan Experts at UnitedOne Credit Union to explore your options. Make an appointment to speak with a UnitedOne Mortgage Specialist.