When You Can’t Put 20 Percent Down

Last weekend, my boyfriend said to me, “babe, we can’t buy a house. We don’t have 30% to put down!” Right then, I realized I had failed somewhere. We talk about real estate all the time. No really, all the time. Somehow, despite having a Realtor sharing the inner-circle secrets of home buying and selling, my boyfriend still believed we need a 30% down payment to buy a home. This is one of the biggest misconceptions that home buyers have, old and new, and I am about to blow your mind. A 20 percent down payment is not required to buy a home. You can buy a home with as little as ZERO down! What? Yes, it’s true. You don’t need 30% or 20% or 5% to buy a house. Some buyers will qualify to buy a house with zero money to put down. This blog discusses some of the more common down payments and the loan products that provide them.

Zero Percent Down

Individuals that qualify for a VA Loan will be able to purchase a home with zero down. The VA Loan is a mortgage loan guaranteed by the United States Department of Veteran Affairs. This loan is available to eligible military service members and veterans (and surviving spouses.) This loan does not have mortgage insurance, but it does come with a funding fee which can be rolled into the loan.

Three Percent Down

The Conventional Loan requires as little as a 3% down payment.  A Conventional Loan is also referred to as a conforming loan because it is backed by and conforms to the lending standards set by Fannie Mae and Freddie Mac. Individuals that choose to put down less than 20% will have to pay mortgage insurance (PMI) in addition to their mortgage payment. PMI is an insurance policy that protects the lender should the buyer stop making payments. The great thing is, once you reach 20% equity in the home, you can request that PMI be removed from your payment.

Three And A Half Percent Down

The FHA Loan is an option for many first time buyers and requires only 3.5% down. The FHA Loan is popular with first time buyers because qualifying requirements are more lenient than a Conventional Loan. The FHA loan is insured by the Federal Housing Administration. This loan type also has mortgage insurance, but you will continue to pay the premium for the life of the loan.

Twenty Percent Down

For buyers with 20% to put down, a Conventional Loan is the way to go! If you qualify for a Conventional Loan and are able to invest 20% or more as a down payment, you’ll avoid the requirement to pay mortgage insurance. You will also qualify for a better interest rate, look more attractive to sellers and widen your selection of home types (such as condominiums.)

Most buyers will be eligible for a loan product that allows them to put down as little as 3% to 3.5%, but are permitted to put down even more. It may seem that putting down at least 20% and avoiding mortgage insurance is the best option, and in some markets that may be true. Today, mortgage rates are at an all-time low, and it may be more cost effective to buy now at a lower interest rate with a lower down payment. The alternative is to save more money for a down payment, put off buying for a year or two, and possibly find that interest rates have increased. What option is cheaper in the long run? It’s nearly impossible to predict the future, but a good lender can evaluate your personal financial situation and offer you sound advice.

When you’re ready to buy a home, give me a call. We’ll discuss the process, talk about loan options and I’ll refer you to some amazing lenders!

Do you have questions about mortgages? Leave a message in the comments below!