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Fact Or Fiction: You need to put 20% down on a house.


I’d put this in the same category as “You should wait 45 minutes after eating before going swimming.” I suppose it’s good advice, but it’s not a requirement.

In general, the bigger the down payment you’re making, the better terms the lender will give you. Recently, we’ve seen lenders waive the requirement of having an appraisal with a large enough down payment.


Loan Types and Down Payments

There are loans that let people get into houses with 0% down.

And, of course, there’s everything in between

Most lenders will give “conventional loan” terms, which are good terms, for any loan with at least 5% or 10% down. Check with your lender, and if you want a list of local lenders who will do 5%, either call around, or ask your experienced Realtor at Green Light Real Estate.

VA Loans

VA Loans, through the Veterans Administrations are often 100% financed, meaning that borrowers aren’t required to make any down payment. You do have to be a veteran, and you have to have your certificate of eligibility for a VA loan.


RD Loans

RD (Rural Development) loans also allow purchasers to borrow up to 100% of the purchase price. These loans fall under the umbrella of the USDA. According to the USDA, all of Vermont is considered rural, and therefore eligible, despite what you may have experienced in Burlington at 4:45 on a Tuesday. There are, however, household income limitations that impact eligibility. Here’s a link to a table that gives some info on the income limits, by county, within Vermont.


FHA Loans

FHA (Federal Housing Administration) loans are typically underwritten with 3.5% down, or borrowing 96.5%. I guess they figured that percentages weren’t enough, they needed percentages and decimals to really get their point across.

All of this is great news for people who don’t want to put $70,000 down on a $350,000 house. 

Red Flags For VA/RD/FHA Loans

But there are some catches.

Each of these low income loans (VA, RD, and FHA) have guidelines about the condition that a property needs to be in. Basically, it has to be in good condition. And, an appraiser is going to be the person making that decision. Actually, it’s the appraiser plus any other lender “overlays”. 

There are a few red flags that are almost always going to be flagged by a VA/RD/FHA appraisal, including:

-peeling paint

-missing GFCI outlets in kitchen, bathrooms, garage, unfinished basement, laundry, and the exterior

-inadequate or missing handrails and deck rails

-peeling or deteriorated paint

-roof with less than five years of life expectancy remaining

So, you can’t go with a low down payment loan on a house that has any of these. People do try, and we’re pretty good at making it work. It’s just  important to have a clear understanding of who’s going to do what (paint? Repair electrical?) and when it’s going to happen. 

It can be frustrating because you  won’t necessarily know if you’re in the clear until the appraisal report comes back, and it gets reviewed by the bank’s underwriters. Sometimes that’s only a few days before the scheduled closing. See how fun this can be?

All that said, in Vermont in 2022, 8% of all of the sales were VA, RD, or FHA. Not a huge percentage, but it wasn’t zero.

Probably the biggest reason why that number was only 8% was because buyers have had to compete with each other these last few years. Being totally honest, a 100% financed loan is going to be harder to get than an 80% financed loan. If a seller has more than one offer, they’re usually going to pick the one that has a higher probability of closing. So…the 20% down.

The 20% down offer loses in a head to head competition with a 50% down offer. Which then loses to an all cash offer. 

The short answer is no, you don’t need to have 20% down to buy a house. But the more you can put down, the better your chances of getting your offer accepted.

At Green Light Real Estate, we’re experts not only at helping people find the right home, but also at creating strategies that take into consideration financing, property details, market conditions, and negotiation nuances to help our buyer clients make strong (but not reckless) offers, and put them in the best position to get their offers accepted.


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