The Down Payment Myth
/If you are thinking about buying your first home, two words may be keeping you up at night: down payment. According to a recent report by NerdWallet, 44% of Americans believe that they need a down payment of 20% or more to buy a home, and another 44% said that the lack of a down payment is keeping them from buying a home.
But are they correct? Do you need a 20% downpayment to purchase a home? The answer is a resounding no.
While 20% is the down payment needed to get a conventional mortgage and not pay any private mortgage insurance (PMI) it’s far from a hard-and-fast requirement for qualifying for a mortgage. In fact, there are many mortgage options that don’t require a 20% down payment, including:
Fannie Mae and Freddie Mac have 3% down payment programs available.
Federal Housing Administration (FHA) loan only requires a 3.5% down payment.
Veterans Affairs (VA) loan can be approved for 0% down.
USDA loans can also offer a 0% down payment option.
There are also private banks, online lenders, and even local governments that offer low or no down payment options.
And, if you have your heart set on a conventional mortgage, you can get approved for a loan with less than 20% down, but you’ll have to pay private mortgage insurance (PMI). PMI may cost between 0.5% and 1% of the entire mortgage loan amount and is paid directly to your lender. But before you get discouraged, remember that paying PMI isn’t always bad. Trying to avoid paying PMI may cost you more in the long run (for example, if your lender increases your interest rate in exchange for not paying PMI).
So don’t listen to well-meaning relatives and friends: you can buy a home without a 20% down payment. And if you are dreaming of a new home, search our list and get in touch.
