20 July, 2017 Justin 0Comment

I have 20% to put down on a home. Says no one in general. The 20% down payment is enough to scare some prospective homebuyers who ought to know that it’s clearly not a hard and fast rule. Some buyers can get by with 3.5% or 5% of the purchase price on a home. It’s a matter of finding a loan program that offers financing beyond 80% and weighing the costs and benefits of going after it.

Not All Makes a 20% Down Payment

LA Times recently described the 20% down payment as all but dead. The report iterated that while 20% is a benchmark, oft-quoted by mortgage experts and professionals, more than half of non-cash buyers made down payments below that percentage.

From conventional to government loans, a number of mortgages exist to help homebuyers who can’t afford the hefty 20%. These are:

Conventional loans: A subset of conventional loans that conform to Freddie Mac and Fannie Mae standards, these mortgages call for really low down payments. Take for example Fannie Mae’s 97% loan and HomeReady® with 3% down payment, and Freddie Mac’s Home Possible® offering between 3% and 5% down payment solutions.

Government loans: FHA, VA, and USDA are popular for their very low to zero down payments. Down payments on FHA loans are typically 3.5% for creditworthy borrowers. VA loans and USDA loans go as far as 0% down!

Needing Help With Down Payments?

Down Payment Assistance (DPA) programs are meant to help homebuyers, usually first-timers, with their down payments and/or closing costs.

These programs give assistance in the form of grants or second or third mortgages with minimal interest rates. Because a DPA operates on a local or state level, it’s best to contact your local housing authority about any such programs.

Don’t forget to check out private mortgage lenders offering downpayment assistance.

If I Put Less 20% Down, What Happens?

There are a number of things that you can expect when you choose to make a smaller down payment. First off, the lender can require a private mortgage insurance for conventional loans or mortgage insurance premiums for FHA loans. This PMI adds to your monthly mortgage payment.

A low down payment also puts little equity in the home. This could be a problem if your home’s market value goes down and you need to refinance. Other homebuyers often wait out for their home to gain value before they refinance or ask to modify their loan.

Interest rates on mortgages with low down payments could be higher to reflect the higher lending risk. But for their low down payment requirement, government loans are competitively priced.