When it comes to buying a house, a down payment shows that you are a serious buyer. Unfortunately, many people believe they can’t secure a mortgage because they have trouble saving the down payment. While putting 20% down has long been considered the gold standard, it’s not required! We’re here to dispel the most common myth about down payments.
While 20% down is the recommended number to avoid paying private mortgage insurance, it’s not required to buy a house! There are several mortgages that accept lower down payments. Requirements vary based on loan type and whether this is for a primary residence so please check with individual lenders for details.
Mortgages that don’t require a 20% down payment
Federal Housing Administration (FHA). Administered by the Federal Housing Administration, buyers are able to secure an FHA loans with as little as a 3.5% down payment. These loans are common with first-time home buyers.
Veterans Affairs (VA). Insured by the U.S. Department of Veterans Affairs, VA loans are available to current and former servicemembers, and surviving spouses. VA mortgages don’t require a down payment and often provide the lowest interest rates. Eligible veterans also don’t have to pay private mortgage insurance, making home ownership more affordable.
HomeReady. Backed by Fannie Mae, the HomeReady program is designed for low-to-moderate income buyers. It requires only 3% down and is pretty flexible with the down payment funding source. Borrowers can use a mix of down payment sources including gifts, cash-on-hand, and down payment assistance programs.
HomePossible. Similar to Fannie Mae’s HomeReady program, the HomePossible program is backed by Freddie Mac and has a down payment requirement of as little as 3%. Income limits apply.
Benefits of a sub-20% down payment
In some cases, putting less than 20% down can be a financially savvy move. Depending on your financial situation, here are a few reasons why putting down a smaller down payment may make sense:
Free up funds. A smaller down payment will make additional funds more liquid, making it possible to fund an emergency savings account, retirement, pay down high-interest debt, or other important expenses. The extra money can also be used to fund a renovations budget.
Enter the market sooner. Waiting to save the full 20% down payment delays your readiness to purchase a home. If home prices are rising in your area, this could mean spending more at a later date or being priced out of the market.
Get help with your down payment
Every state (and sometimes city and county offices) has at least one homebuyer assistance program that provides help with down payment and closing costs. Many buyers believe these programs are limited to low-income or first-time buyers but they’re available to a larger pool of potential buyers. Do your due diligence and learn what assistance is available.
Hopefully, this helps calms your concerns about saving enough for your down payment. Knowing that having 20% down is a myth, you can move forward with finding your dream home. When you’re ready to find your new home, visit LexingtonChicago.com to learn more about our Chicagoland communities and find your new home.
