Buying your first home is a no easy task, and many people see the initial down payment as a tough hurdle to overcome. While it can certainly be a challenge to fit down payment savings in your budget, it is generally financially better to own a home over the long term. Homeowners usually have a higher net worth than renters, and their monthly mortgage payments go toward building personal equity, whereas rent payments are not going toward an investment.
One thing that stops many people from buying their first home sooner, is the idea that they must have a 20% down payment to buy a home. However, there are many loan programs available which allow people to get a mortgage and purchase a home for less than 20% down. To help homeowners overcome the challenge of saving for a down payment, we have put together a list of some of the top low-downpayment home loan options.
If you qualify for an FHA loan, you can purchase a home for as little as 3.5% down! FHA loans can also generally cover many different types of properties. For FHA loans, there are income and FICO credit score limits which you can learn more about here. You may also be required to pay Private Mortgage Insurance (PMI) in addition to your monthly mortgage payment. PMI protects lenders in the case of a default or disclosure and is often required for situations where a buyer puts down less than a 20% down payment.
You may be surprised to learn that there are Conventional loan programs that allow for down payments as low as 3% depending on the borrower’s credit profile, the area of the property, and the terms set for the loan. Some Fannie Mae of Freddie Mac conventional loans can be especially affordable because they allow for a percentage of the down payment funds to come from a gift payment if necessary. For exact details about gift payments and conventional loans, contact your mortgage broker. Monthly Private Mortgage Insurance payments may also be required for Conventional loans when the down payment is less than 20%.
Veterans and Active Duty Military can receive certain home buying benefits as a “thank you” their service. Qualifying veterans can purchase a home with $0 down, and n monthly PMI. A one-time funding fee is required for this program, and it can be included in the loan instead of paid up-front. In some cases, a surviving spouse of a veteran can also qualify for a VA loan.
Be sure to check out local down payment assistance options as well! Your state, county, or city may offer special incentives or down-payment assistance if you meet certain income requirements. On a national level, you could also qualify for a USDA loan if your property is in a ‘rural” qualifying area. USDA loans can allow buyers to purchase a home with $0 down.
Ultimately, there are many ways to purchase a home with less than 20% down. If you want to learn more about your specific options, contact us!