Gone are the days where you absolutely, positively need a 20% down payment in order to qualify for a home loan. This is a myth that has been perpetuated over the last 10, 20, even 30 years, and although we are through the subprime mortgage fiasco of 10 years ago, there are better ways to buy a house rather than the full 20% down payment or nothing at all. There are a lot of options nowadays, and homebuyers have a plethora of programs and possible options to meet their home buying needs for their financial benefit, both now and in the future. But, that 20% down payment has certainly stopped a lot of would-be homebuyers from owning a home.
Our parents most likely put down 20% and financial experts, parents, and professionals have all pitch to us that the 20% down payment is a necessary evil, but is it really?
Can I buy a house without 20% down?
The straightforward answer is yes. And honestly, the upfront massive costs are not even the norm anymore. The average down payment according to the National Association of Realtors is just 6%. We talked about the 20% to avoid things like mortgage insurance and higher interest rates, but since the invention of the FHA loan in 1934, most mortgages of not required the 20% down payment. There are other options.
The FHA mortgage. This mortgage requires just 3 1/2% down payment and it can be sourced from a financial gift or even a down payment assistance program allowing for a nearly 0 down payment home loan.
VA mortgages. These also have zero down options and no monthly mortgage insurance. These are available to current and former military service personnel and most loans are offered by the lenders across the country.
Conventional loans. These are the 20% monsters. These are the ones that we strive for but did you know that conventional loans can be as little as 3% down? Programs like Home Ready allow non-borrowing household members to contribute toward qualifying income. Home Possible Advantage, a Freddie Mac loan offering just 3% down payment, and reduced mortgage insurance. And then there’s the Conventional 97, a Fannie Mae loan offering no income limits and no first-time homebuyer requirements.
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The USDA home loan. This has been one of the most popular loans for those buying in rural areas. Homes must qualify and cannot be in major metropolitan areas but they are backed by the United States Department of Agriculture and offered by most mortgage providers. These loans are perfect for a single-family home in a less dense area and they offer zero down home loan.
There are other options for either a 5% down or a 10% down payment as well as piggyback loans and down payment assistance programs. The more money you put down, the lower your interest rate on average based on your credit history and score. There are so many factors that mortgage lenders include when determining a qualified applicant so just because you were declined for one loan, doesn’t mean you won’t be approved for another.
The idea is to shop around, find out your options, and be totally honest with your mortgage officer. We can help devise the right structure and financial plan for your home buying success. Give us a call today and find out how easy it is to apply for a mortgage and find the home of your dreams without that nagging 20% down payment.