Minimum down payment for first-time homebuyers
There are two ways to answer this question because you’re asking two separate questions.
We take “realistic” to mean whatever makes sense for a buyer. There are some who believe that 20% is a “realistic” minimum down payment because it avoids mortgage insurance. Lenders view borrowers who make a smaller down payment as presenting more risk. Because of this, lenders require mortgage insurance to manage their risk. That insurance costs the borrower money.
If a buyer has enough money for a 20% down payment and closing costs and has something left over for cash reserves, 20% is fine. I say that with one caveat: if you carry any consumer debt with rates higher than that of a mortgage, it is FAR better to pay those more expensive items off with available cash than to put it into a home down payment.
What If You Can’t Make 20% Down Payment?
If a buyer doesn’t quite have enough cash for a 20% down payment plus closing costs, waiting to save up the money can be very expensive. First, home values are increasing in most areas of the country today. This means that if there is an appreciation rate of 4%, the $300,000 home you have your eye on today will cost $312,000 a year from today. There is also the matter of rising interest rates.
If you have the ability to buy today regardless of the amount of cash you have—as little as 3% plus closing costs can get you into a home—buying now is a good idea. Yes, there will be mortgage insurance, but that is temporary; once you can demonstrate to the lender that your loan balance is 80% of the home’s market value or less, they will no longer require the insurance.
Meanwhile, here is also an article on how to solve your problems with a down payment.
We hope this is useful. Good luck!