Demystifying the Down Payment
The biggest myth in real estate is that you need 20% down to buy a house. Let's look at the reality.
For decades, financial advice dictated that you must save 20% of a home's purchase price before buying. In today's market, waiting to save 20% means getting priced out as homes appreciate faster than you can save. Today, the average first-time buyer puts down just 6%.
The Standard Tiers
0% Down
Available only through VA Loans (for military/veterans) and USDA Loans (for designated rural areas).
3% Down
The minimum for Conventional loans. Available only to first-time homebuyers (anyone who hasn't owned a home in the last 3 years).
3.5% Down
The minimum for FHA Loans. Excellent for buyers with lower credit scores.
5% to 19% Down
Standard conventional territory. The more you put down, the lower your monthly Private Mortgage Insurance (PMI) premium will be.
20% Down
The gold standard. Putting 20% down completely eliminates Private Mortgage Insurance, saving you hundreds of dollars a month.
Acceptable Sources of Funds
Underwriting regulations strictly track where your down payment comes from to prevent money laundering and secret loans.
- Savings & Checking: The money must be "seasoned," meaning it must show up on two months of bank statements. You cannot deposit $10,000 in cash the week before closing without a paper trail.
- Retirement Accounts: You can pull from 401(k)s or IRAs. Check with a tax professional regarding early withdrawal penalties.
- Gift Funds: Parents or family members can gift you the down payment. They will need to sign a formal "Gift Letter" stating the money is not a loan that requires repayment.
- Sale of Assets: Selling a car or boat is acceptable, provided you have a bill of sale and paper trail of the transfer.
Unacceptable: Cash advances from credit cards, un-sourced mattress cash, or undocumented personal loans.
Don't have enough saved?
Michigan offers up to $10,000 in down payment assistance through the MSHDA program.
Read the MSHDA Guide