Should You Buy a House With a Small Down Payment? Here's What Suze Orman Thinks

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KEY POINTS

  • Suze Orman has long recommended a 20% down payment.
  • With today's tight housing market, Orman believes 10% down is OK for some people.
  • She only recommends this if you have an emergency fund, no credit card debt, and a few other financial steps in place.


Suze Orman's minimum down payment recommendation may come as a surprise.

Buying a home can require saving up a lot of money. Traditionally, many lenders have required a buyer to make a 20% down payment to qualify for a mortgage. This would mean that a down payment of $60,000 would be required to purchase a $300,000 home.

Now, however, many mortgage providers are willing to make loans with less money down. And, in some cases, it's even possible to get a loan with no down payment at all.

But just because you can buy a house with a small down payment doesn't always mean it's a good idea. If you're thinking about moving forward with purchasing property when you have little or no cash to put into the transaction, you'll need to carefully consider whether this is the right choice.

Some advice from finance expert Suze Orman could help you decide.

This is Suze Orman's advice on home down payments

Orman has long been an advocate for a 20% down payment. "A 20% down payment is still considered the gold standard," she wrote on her blog. "If you can bring that much cash to the deal -- and you have a solid financial picture -- lenders are going to be eager to offer you a great deal."

Orman has also advised that you put down 20% when possible to avoid private mortgage insurance (PMI). PMI is required on most loans with smaller down payments, largely because lenders face a greater risk when borrowers don't put much down. There's a chance the house won't be worth enough to repay the amount borrowed, and PMI protects the mortgage lender if this occurs. Borrowers must pay for it, but it doesn't actually provide protection for them.

However, while Orman believes a bigger down payment is better both to avoid PMI costs and to make sure you get better loan terms, she's acknowledged that it's not possible in every situation.

And, in today's housing market where there's very high demand for properties and prices have risen, she recently told NextAdvisor that she's OK with borrowers putting down just 10% if that's what they need to get into a house, as long as they have a few other pieces in place.

There's a caveat to consider before putting down less than 20%

While Orman has said that a 10% down payment is acceptable, the finance expert added that making a smaller down payment is appropriate only in certain circumstances.

According to Orman, a 10% down payment only makes sense if you:

  • Have an emergency fund with at least 12 months of expenses saved: An emergency fund reduces the chances of facing foreclosure due to an income interruption.
  • Have no high-interest consumer debt: This means you have fewer monthly obligations (like credit card debt) to worry about.
  • Aren't cutting back on saving for retirement: Orman doesn't want you to compromise on saving for the future just to buy a house faster.
  • Have a secure source of income: This also reduces the risk of ending up facing foreclosure or struggling to pay your bills.

If you can meet these criteria and still qualify for an affordable loan, even with PMI payments tacked on, Orman believes you should be good to buy a house even with just 10% to put down.

That said, while some lenders do allow even smaller down payments, this increases your risk -- and usually your upfront costs -- so you may want to avoid buying a home until you can come up with at least Orman's recommended 10%.

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