We find that one of the biggest misunderstandings in the market right now, particularly for current renters and first-time buyers, is that a 20% down payment is need to buy a home. Not true. Many programs exist to allow the purchase of a home with a down payment of less than 20%. This misunderstanding has led many renters to continue to help pay off their landlord’s mortgage rather than building equity of their own.
The amount of minimum down payment required will depend on the type of loan you choose. Each type carries its own guidelines. Gone are the days of securing a loan without proof of income and a solid work history and credit score. Today, underwriters closely scrutinize a borrower’s ability to repay the loan. Still, many loan types are available without a 20% down payment. The key is good credit and a solid work history.
Most conventional loans are fixed-rate mortgages, and many lenders offer flexible down payment plans. While 100% loans are not available, typically with a high enough credit score, you can find a loan for a 5% down payment. There are also 10% down payment and 15% down payment loans. All 3 of these types of loans involve either private mortgage insurance (PMI) or a slightly higher interest rate to offset the lenders greater risk. With 20% down, there is no PMI.
In addition, DC, Virginia, and Maryland have special programs which with their own features, in particular, many that help first-time buyers with down payment assistance. A lender can help you understand these.
A VA loan is one of the best deals going in America. It offers competitive rates and terms to past and present military members of our armed services while requiring no down payment from qualified vets.
Another government program, the FHA loan, has been around even longer than the VA loan program. The minimum down payment for most FHA loans is 3.5%, so for a $300,000 sales price, the minimum down payment would be $10,500. However, the FHA Plus program allows a purchase with no down payment. Buyers should be aware that FHA loans come with a mortgage insurance premium, which will be folded into the loan. The good news is the government recently lowered these premiums.
Conventional wisdom says you should put down as much as you can to buy a home. That may or may not be true. With today’s low interest rates, more down doesn’t really lower you monthly payment by all that much. Generally, more is better than less, but don’t wipe out your savings account to do it. You will still need to have funds set aside for a rainy day and for things to buy after buying a home.
Have questions or want to know more about how we can help you? Contact us!