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You Don’t Need 20% Down payment
The “20% Down payment Myth” has stopped some people from buying a home. It’s a old idea from a long time ago. Some people claim that 20% down is a wise move. But is it? Making a large down payment on a home can put all your savings at risk. Still, today’s home buyers are the given bad advice.
The 20% Down payment Myth is circulated to this day because you need 20% to avoid mortgage insurance on a conventional loan. But, as many homeowners have discovered, mortgage insurance is not bad. Since the advent of FHA loans in 1934, mortgages have not required 20% down. That was more than 80 years ago!
The following are ways in which you can buy a home with little down payment available. The FHA mortgage requires just 3.5% down. But most first-time buyers don’t know that the down payment can be a gift.
VA mortgages require zero down. Plus, they require no monthly mortgage insurance, helping you buy more house for less money. 100% of the closing costs can come from a seller concession or via gift funds from family.
Conventional loans offer down payments as low as 1%.
HomeReady™: Allows non-borrowing household members to contribute toward qualifying income. Also, use roommate income and mother-in-law unit rental income to qualify
Home Possible® Advantage: A Freddie Mac 3% down loan offering reduced mortgage insurance
Conventional 97: Fannie Mae’s low down payment loan with no income limits and no first-time buyer requirement
USDA home loans require nothing down. Property eligibility is location-based. Homes outside of major metros are likely eligible. The loans are backed by the United States Department of Agriculture and offered by most mortgage providers nationwide. These loans are not for farms, but for typical single-family homes that happen to be in less-dense areas. USDA loans are available in every state.
Piggyback loans only require between five and ten percent down. Typically, you get an 80% first mortgage, a 10% second mortgage and put ten percent down. This eliminates the need for mortgage insurance. Piggyback loans, also known as 80/10/10 or 80/15/5 loans, are best for those with good credit and at least 5% down.
Keep in mind that you will pay closing costs even if you select a loan program with no down payment requirement. Although the Seller can pay a certain amount of buyers closing costs. The seller can issue a closing cost credit to pay for a percentage of the buyer’s closing costs. Seller concessions are more available in markets that favor the buyer.