Part 4: Addressing the 20% Down Payment Myth
One of the reasons I wanted to create this Homeownership Guide is because there are so many financial “rules” we’ve heard our entire lives that we simply accept as fact. Unfortunately, some of them keep people from pursuing homeownership before they’ve even had a conversation with a lender.
To help separate fact from fiction, I’ve once again teamed up with my friend and mortgage expert, Satchel Howard. Throughout this series, Satchel has helped answer the questions many of us have but aren’t always sure who to ask. Her goal, like mine, is to make homeownership feel less intimidating by helping us understand how the process actually works.
Today’s topic tackles one of the biggest myths in real estate:
“You have to put 20% down to buy a home.”
If you’ve been telling yourself this, you’re certainly not alone. But as Satchel has taught me, this belief has prevented countless people from exploring homeownership when they may have been much closer than they realized.
Let’s talk about where this idea came from—and why, for many buyers today, it simply isn’t true.
1: History
Where the 20% Down Idea Came From
Like many financial “rules,” this one has roots in history—but not necessarily in today’s reality.
Prior to the 1930s, purchasing a home looked very different than it does today. Mortgage loans were short, often lasting only five to ten years, and buyers frequently needed to bring 40–50% of the purchase price upfront. Homeownership simply wasn’t accessible for many families.
Following the Great Depression, new systems were created to make buying a home more attainable. Longer loan terms, government-backed mortgage programs, and lower down payment options began opening the door to more Americans.
Even with these changes, lenders continued viewing a 20% down payment as the ideal benchmark because it reduced their risk. Borrowers with more equity were statistically less likely to default, making those loans safer for banks.
Over time, what started as a lender’s preference slowly became something many people interpreted as a requirement.
And that’s where the myth began.
Today, there are numerous loan programs that allow qualified buyers to purchase a home with far less than 20% down. Many first-time buyers put down significantly less while still becoming successful homeowners.
Could you choose to put 20% down?
Absolutely.
But in many situations, waiting years to save that much money may actually delay your opportunity to begin building wealth through homeownership.
I often tell people that time in the market is frequently more valuable than waiting for the “perfect” down payment.
Buying earlier—even with less money down—can allow you to begin paying down principal, building equity, and benefiting from appreciation sooner.
The goal isn’t to hit an arbitrary number.
The goal is to understand your options and choose the path that makes the most sense for your financial situation.
2: Vocabulary
Let’s Learn the Mortgage Terms Everyone Throws Around
Loan-to-Value (LTV)
Loan-to-Value, or LTV, measures how much of the home’s value you’re borrowing compared to how much you’re putting down.
For example:
If you’re purchasing a $400,000 home and making a $40,000 down payment (10%), you’ll borrow $360,000.
That means your Loan-to-Value ratio is 90%.
Why does this matter?
- A higher LTV generally means a smaller down payment.
- A lower LTV means you’re bringing more equity into the purchase from day one.
- Your LTV can influence your interest rate and whether mortgage insurance is required.
Closing Costs
Many buyers spend so much time thinking about their down payment that they forget about closing costs.
Closing costs are the additional expenses required to finalize your home purchase.
These can include:
- Loan fees
- Appraisal and inspection fees
- Title and escrow fees
- Attorney fees (depending on your state)
- Prepaid taxes and homeowners insurance
One of the biggest surprises for first-time buyers is learning that closing costs are separate from the down payment.
Planning for both early makes the process much less stressful.
Grants
Here’s something many buyers never realize:
There may be money available to help you purchase your home.
Homebuyer grants are funds that can help cover some of your upfront costs.
The best part?
Many grants do not have to be repaid.
They’re often designed for:
- First-time homebuyers
- Buyers within certain income ranges
- People purchasing in specific locations
- Certain professions
Not everyone qualifies for every program, but knowing what’s available could significantly reduce the amount of cash you need before buying.
It’s always worth asking your lender what assistance programs are available where you live.
3: Money Tip
Keep Your Money “Clean”
Preparing to buy a home isn’t only about saving money.
It’s also about making your finances easy to understand.
When lenders review your bank statements, they need to verify where your money came from.
Large, unexplained cash deposits or irregular transfers can create additional questions and documentation.
Instead, focus on building good financial habits now:
- Save consistently each month.
- Keep transfers easy to trace.
- Avoid moving large sums between multiple accounts unless necessary.
- Keep records of any gifts you’ll be using toward your purchase.
Think of it this way:
You’re telling the story of your finances.
The easier that story is to follow, the smoother your mortgage process is likely to be.
4: Your Next Step Toward Homeownership
Step 4: Estimate What You Can Realistically Save
Forget the mythical 20% for a moment.
Instead, ask yourself one simple question:
“What amount could I consistently save every month?”
Not your best month, or your perfect month. But a realistic month that feels average and expected.
Maybe that’s $500.
Maybe it’s $200.
Maybe it’s $50.
The number matters far less than the consistency.
Once you know what you can comfortably save, you can begin estimating how long it will take to reach your goal— and your lender can help determine what that goal actually needs to be.
A clear plan is always more powerful than a vague hope. You don’t become a homeowner by saving perfectly, you become one by taking intentional steps, month after month, toward the future you’re building.
And that’s exactly what future matriarchs do.
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