Not ready for a sizable down payment?
There are options that can make you a home owner with a low down payment.
Deciding on how much money to use as a down payment can be confusing but we will help identify low down payment options will perform best for you. The route for each buyer depends on their situation and personal preferences.
Low Down Payment Options
You can purchase a single-family home or condominium with as little as 3.5% down payment using an FHA loan, but there is a price for lower down payments on conforming loans which is paid in the form of mortgage insurance (often called PMI, private mortgage insurance).
Mortgage insurance is required when the conforming loan amount is MORE than 80% of the purchase price (practical translation: down payment is less than 20%). Also, the lower the down payment, the higher the premium ratio charged.
Is your dream home surrounded by pasture, farmland or located in a rural area? Buyers in rural and suburban markets may be able to use a USDA loan, which requires no money down.
Household income limitations do apply and buyers should expect to pay PMI if their down payment is less than 20%.
Military veterans who qualify for a VA loan can purchase a home with no money down. VA loans can provide up to 100% financing for qualified military personnel and veterans.
Have less than perfect income and credit? There are programs that may fit your needs or we can work with you to get you loan ready!
These loans are available to everyone, but they are more difficult to qualify for than VA and FHA loans. Since there is no government insurance, conventional loans pose a higher risk for lenders, so credit and income requirements are stricter than for FHA, VA and USDA mortgages.
Conventional mortgages generally pose fewer hurdles than government-backed mortgages, which may take longer to process. Minimum Down payments are 3% for a first time home buyer and 5% for non-first time home buyers. Typically, conventional loans have lower monthly mortgage insurance than FHA. PMI will automatically drop off after 22% equity.
How Much Will I Need For Low Down Payment Options?
There are costs and benefits to any option, including those with low down payments. You should carefully consider your options and discuss your plan with a professional.
Dave and his team are loan specialists that will work with you to identify a customized solution that best fits your needs and budget. To ensure a smooth mortgage transaction, call Dave and his team today so they can work to get you loan ready and identify your options.
Cost Of Lower Down Payment Options
Low or no down payment programs have two primary costs that result in a higher monthly payment:
- Higher interest rates
- Higher mortgage insurance premiums.
Mortgage insurance can be removed once sufficient equity is produced. For example, if the property shows at least 20% equity in a few years, the mortgage insurance can be refinanced away.
Benefits Of Lower Down Payment Options
Though the disadvantages of low down payments seem serious, there are also advantages. Take time to weigh the two and assess which is the best for you.
The main benefits of lower down payment include the following:
- Less money out of pocket at the time of purchase.
- Your property’s appreciation will be the same whether you put 3%, 5%, or 20% down.
- Opportunity cost. In some cases, the smart investor can make more money from available cash by placing it in other investments.
Carefully consider the amount of money that you want to put down. We will qualify you for a certain level based on your income vs outstanding debt payments; however, that amount may be different from the level that you feel comfortable paying each month. You must decide what you can afford and then find the loan program that will meet your needs.
Talk to Dave and his team about the best situation for you.
Have questions? Give us a call! One of our mortgage specialists would be happy to answer all of your questions.