Just thinking about down payments makes some homebuyers start to sweat. They often wonder how it’s possible to reach that seemingly insurmountable goal of 20%. After all, if you plan to purchase a home for $500,000, a 20% down payment would be $100,000!
Here’s the answer: You don’t always need a 20% down payment! Did you know that the average down payment for a first-time homebuyer is approximately 6%? That statistic alone should lower your blood pressure.
If you’re ready to buy a home and interested in learning how to make it happen with minimal up-front funds, you’re in the right place! Today we’re going to review loan program options that accept down payments far lower than the 20% we’ve come to know.
Down Payments Explained
Your down payment is the amount of the home’s principal that you bring to closing. In our earlier example, if you put 20% down on a $500,000 home, your down payment would be $100,000. You would receive a mortgage to pay the remainder of the home’s purchase price over a designated time.
Practical Programs To Address Your Down Payment Concerns
If a 20% down payment doesn’t fit your financial needs, you have plenty of options. Here are some of the most popular low- and no-down payment programs that we offer:
- Conventional 3%-Down Mortgages
The two most popular loan programs in this category are Freddie Mac’s Home Possible® program and Fannie Mae’s HomeReady® mortgage. If you qualify for one of these programs, you’ll reap the benefits of a 3% down payment, but you’ll need to pay PMI until you reach 20% equity in your home. - FHA Loans
FHA loans are known for their attractive 3.5% down payments and their forgiving credit score thresholds. They have a mortgage insurance requirement, but it works differently than PMI. - VA Loans
VA loans are a zero-down mortgage option for current military members, veterans and their spouses. They don’t have a PMI requirement, making them a financially-savvy choice for eligible buyers. - USDA Loans
USDA loans are another program that doesn’t require a down payment. Buyers can only use these to purchase rural properties, and income limits apply. Like VA loans, USDA loans don’t require PMI.
Things To Understand About Low Down Payments
When buyers hear that low-down payment mortgages are available, they often want to jump in without learning more. Although we believe that these programs provide paths to homeownership for cash-strapped buyers, there are still a few things you need to know:
- Although some low- and no-down payment programs don’t require PMI, they come with other fees to protect the lender.
- A lower down payment often comes with a higher interest rate.
- A lower down payment also comes with a higher monthly mortgage payment.
Contact Us Today!
Are you interested in learning how to purchase a home with minimal cash at closing? Contact MortgageDepot today to see if one of our low- or no-down payment programs is right for you!
Connect with one of our loan consultants for more information.
