Myth #1 — You need a 20% down payment

“I can’t afford to buy a home.” 

“The interest rates are too high.”

“We’re entering a recession.”

These concerns are real, and I hear some version of them often. Sometimes they come from current market conditions. Sometimes they come from outdated advice that has been repeated so many times it starts to feel like fact.

Either way, buying a home can feel out of reach when the conversation is dominated by fear, uncertainty, and half-truths. So I want to take a closer look at some of the most common home-buying myths I hear, starting with one of the biggest:

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Myth #1 – You need to make a 20% down payment

One of the most persistent myths about buying a home in Seattle is that you need to put 20% down.

A 20% down payment can be helpful, but it is not a requirement for many buyers. In fact, many buyers purchase homes with much less down, especially first-time buyers.

When a buyer puts less than 20% down, lenders often use mortgage insurance as a way to reduce their risk. This allows them to approve loans with smaller down payments while still protecting themselves if a borrower were to default.

Here’s the basic idea.

In lending, there is a concept called protective equity. This is the difference between the value of the home and the loan amount. You can think of it as the borrower’s “skin in the game.” In a home purchase, the down payment creates that protective equity.

When a lender approves a mortgage, the home itself serves as security for the loan. In Washington, this is typically done through a deed of trust, which gives the lender the ability to foreclose and sell the property if the borrower defaults.

If the home were sold at auction and did not bring in enough money to cover the outstanding loan balance, past-due payments, and related costs, the lender could take a loss. A 20% down payment gives the lender a larger cushion against that possibility.

But if a buyer puts less money down, say 5% or 10%, the lender may still approve the loan. They will just usually require additional protection. That is where mortgage insurance comes in.

You may have heard the term PMI, which stands for Private Mortgage Insurance. PMI protects the lender, not the buyer, if the borrower defaults and the lender takes a loss after foreclosure.

There are also government-backed loan programs, such as FHA loans, that use mortgage insurance as well. FHA mortgage insurance is usually referred to as MI or MIP, which stands for mortgage insurance premium.

Whether private or government-backed, the purpose is similar: mortgage insurance helps reduce the lender’s risk, which can make it possible for buyers to purchase a home with less than 20% down.

And that matters.

For many buyers, especially first-time home buyers, saving a full 20% down payment in a market like Seattle can take years. During that time, home prices may continue to rise, rents may continue to increase, and the amount needed for a down payment may keep moving further out of reach.

This is where PMI gets misunderstood.

There is a lot of simplified financial advice online that treats PMI like it is always a bad thing. And of course, no one wants to add an extra monthly cost if they do not need to. But PMI is not automatically irresponsible. In some situations, it can be the tool that allows a buyer to purchase sooner, begin building equity, and avoid waiting years to reach a 20% down payment.

For example, let’s say you are looking at a $700,000 home. A 20% down payment would be $140,000. A 5% down payment would be $35,000.

That is a difference of $105,000.

For many buyers, saving that additional $105,000 could take several years. And if home prices rise during that time, the same type of home may cost more by the time you are ready. Your required 20% down payment could also be higher.

Meanwhile, with a lower down payment and PMI, you may be able to buy sooner.

PMI is also usually temporary. It does not necessarily stay with you for the full life of the loan. Depending on the type of loan, your payment history, your loan balance, and the home’s value, PMI may be removed once you reach a certain equity threshold.

That is why it is worth running the numbers instead of assuming that 20% down is the only responsible option.

PMI has a bad reputation, but in the right circumstances, it can make sense. It can help qualified buyers purchase a home sooner, with less money upfront, and begin building equity instead of waiting on the sidelines for years.

The better question is not, “Do I have 20% down?”

The better question is, “What purchase strategy makes the most sense for my finances, timeline, and long-term goals?”

For some buyers, that may mean waiting and saving more. For others, it may mean using a lower down payment loan and accepting PMI as part of the cost of getting started.

Kristina Bulajewski
Broker | Realtor®
Windermere Real Estate Co. | Ballard
Helping buyers and sellers navigate Seattle real estate with thoughtful guidance and local insight.