One of the biggest barriers to homeownership today is the mortgage down payment.
According to the National Association of Realtors, 87% of first-time buyers think they need 10% or more down to buy a home. However, that’s simply not true.
In fact, the average down payment for first-time buyers is currently about 6%. Additionally, some loan programs require no down payment at all. If you feel like you’re stuck trying to save enough down payment money, you may be closer to homeownership than you thought.
If you’re starting to think that a low- or no- down payment loan is the way to go, keep in mind that there are some drawbacks to these types of mortgages. Your mortgage payments will be higher each month and you might have the added expense of paying Private Mortgage Insurance (PMI) each month. PMI is usually required on any loan with less than 20% down. The PMI depends mostly on the loan amount, down payment amount, the amount of your loan term, and your credit score. In lieu of PMI, some loans charge a higher interest rate, which is not as bad as you may think. It is best to compare the different programs before jumping to conclusions.
Low down payment loans can be especially beneficial to those who are looking to stop renting and purchase a home of their own.
Perhaps you’ve got some money saved up for a down payment, but you’re worried about all the maintenance, potential repairs, and “what ifs?” that come with owning a home. Going with a lower down payment mortgage allows buyers to keep more savings on hand for any unexpected issues that may crop up.
There are a number of programs that offer low down payments.
An FHA home loan requires 3.5% down and is the most popular low down payment option due to more lenient requirements. If you’re a veteran or in active service, you may qualify for a VA loan with 0% down. You may qualify for a 0% down USDA loan if you’re shopping for homes in more rural areas. A conventional 97% loan is offered by Fannie Mae and requires only 3% down. Some credit unions, such as Coastal Federal Credit Union and State Employees Credit union, offer low- or no- down payment options to account holders as well.
Be sure to do your research on different loan types and eligibility requirements to determine which loan will be right for you.
Speak with your mortgage lender for guidance, and don’t be afraid to find a new lender if your questions aren’t being answered satisfactorily. The right lender will give you great guidance and put your mind more at ease.
If you need recommendations on lenders that have loan programs that may work for you, please let me know.
