There are many reasons why buying a home can be great, both financially and emotionally. If the dream of having a place of your own is something you’re considering, you’ll need to be really organized during this exciting time.
First off, as you’re already aware, this is a serious financial commitment to take on. And even if your savings seems like a lot to you, it may not be enough to qualify for a standard loan in today’s market. Figuring out how much down payment to make on a house can be tricky. It’s why we’ve put together this review of ways home buyers can get home loans with little — or even no money down.
Do You Have to Put a Down Payment on a House?
Although it’s been customary to put anywhere from 10 – 20 percent down on a home, this is a measure that lenders prefer. It insulates them from loss if the mortgage isn’t paid. And it proves to the lender that you’re serious about buying.
Do you have to put money down on a house? In truth, it depends. Although you may be able to purchase a home with no money down, doing so can limit your mortgage options. And you may find yourself weighed down with a hefty monthly private mortgage insurance (PMI) payment, in addition to a higher interest rate.
Because coming up with that a larger down payment can be difficult, some first-time home buyers are vying for other low down payment alternatives. The good news: you’ve got options when it comes to the minimum requirements for buying a home.
Both repeat home buyers and those doing so for the first time can leverage two government-backed programs that can land you in a home with no money down. Although these programs were initially designed to assist those with limited income, they’re viable options in today’s cash-strapped economy. Here are a few options if you’re wondering how to buy a house with no money down:
VA Loan
Backed by the US Department of Veterans Affairs, mortgages of this type are typically offered to former or currently active US servicemembers and their spouses. In addition to being a no money down mortgage option, VA loans are popular among military personnel because they frequently do not require a PMI when lending.
USDA Loan
This option affords homebuyers another zero money down alternative to a standard mortgage. It’s aimed toward home purchases made in rural and suburban areas. Minimum credit rating and income requirements are in play with this type of loan, and most will only halt PMI after at least 20 percent of the original purchase price is paid on the loan.
How Much Do You Need to Put Down on a House?
As much as you’re shopping around for a home, you should also be shopping around for a mortgage. Even with less than 20 percent down, lenders will be eager for your business. Along with the PMI, you’ll probably find yourself saddled with “upfront fees” that you’ll be required to pay. It’s key compare offers because you may wind up saving thousands. If you don’t qualify for either an VA or a USDA loan, you may still be able to get an FHA loan — which requires about 3.5 percent of the total purchase price as a down payment.
Conventional Loan
These are loans and mortgages that aren’t secured or offered by a government entity. Instead, they’re made available through private lenders or by one of the two government-sponsored lending enterprises: Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). Although 20 percent down is preferred, lenders may be willing to accept down payments as low as 5 percent.
FHA Loan
These loans are insured by the Federal Housing Administration and issued by an FHA-approved lender. They’re perfect for low-to-moderate income borrowers and don’t require as high a credit score as does a conventional loan. It should be noted that PMI will still be in play until 20 percent of the total cost of the home is paid.
What to Consider When Using a Smaller Down Payment
Because your mortgage payment will be higher with no money down, you may feel like you’re saving money on the purchase — but it’s key to keep in mind that each monthly payment will be impacted by this decision. Almost all major online real estate websites have a mortgage calculator of some sort, so use those while shopping for homes to get an idea of what that monthly note is going to look like. Be sure that the calculator you’re using is also capable of factoring in PMI so you’ll be able to compare and contrast sizable down payments versus home purchases with no money down.
Learn More About Saving for a Home
Once you’ve got a plan in place on how you’ll proceed with your home purchase, be sure to reach out to your American Family Insurance agent. They’ll put together a policy that can cover your home from top to bottom. You’ll find peace of mind with easy-to-understand coverage so you can focus on this next big chapter in your life.