One of the biggest misconceptions about buying a home is that you need a down payment of 20% of the home price. The median down payment for buyers under age 37, a group that typically includes a majority of first-time buyers, was just 7% in 2017, according to the National Association of Realtors.

One reason more buyers choose to make a smaller down payment is that it can take years to save enough for a 20% down payment. In the meantime, home prices are rising, pushing homeownership further out of reach. For example, if a buyer waits just one year in order to save more money for a down payment on a $500,000 home, and in that year prices rise 4%, then the price of that home has risen to $520,000 by the end of the year. In waiting to try to save up a 20% down payment, the first $4000 in down payment savings goes just to keep pace with the rising cost of the home. (20% of $20,000 is $4000.) In addition, there is now an additional $16,000 that must be put into the loan, effectively increasing the monthly payment—exactly the opposite of what the buyer was trying to achieve!

It would take an average of 47 years for someone earning the median income in DC to save for a 20% down payment on a median-priced house, according to a report from U.S. Mortgage Insurers, an association representing private mortgage insurance companies. The 2019 study found that it would take Virginia residents 18 years and Maryland residents 16 years.

Home buyers who make a down payment of less than 20% need to pay private mortgage insurance (PMI), which protects their lenders in case they default on the loan but adds to the monthly housing costs for buyers. Nearly sixty percent of buyers who paid PMI in 2019 were first-time buyers, and more than 40% had annual incomes below $75,000. PMI can often be dropped once the equity in the home reaches 20%, which usually occurs through home price appreciation.

The introduction of Amazon into the local employment scene has caused home prices to rise ever faster, making it harder still to save for a down payment. With loan programs available with down payments from 0% (VA and VHDA) or 3% (Conventional and FHA) or more, it pays to find out now what your purchasing power might be. The key right now in the Washington area housing market is to get in the game.