For most people, a home is the largest purchase they will make in their lifetimes. While many experts advise buyers to save enough for a 20% down payment, there are financing options available for buyers who have saved less. In fact, the average down payment in the U.S. is 16% (Source: Lending Tree, June 2013). Although there are advantages to putting more money down, having a modest down payment should not exclude you from the market. If your savings is small, there are options available to help you finance your home purchase.
- Federal Housing Administration (FHA) – insured loans are available for qualified buyers with down payments as low as 3.5%.
- Active and retired military servicemen and women and their unmarried widows may be eligible for a home loan through the U.S. Department of Veterans Affairs (VA).
- Borrowers may also qualify for a USDA/Rural Housing Mortgage, which requires no money down.
- Many banks are beginning to offer mortgages with as little as 5% down.
The majority of us will still finance using a conventional mortgage. Conventional mortgages often require down payments of 10-20% of the home purchase price. Although many lenders may consider smaller down payments, there are benefits to having a large down payment.
- Lower interest rates. You may be eligible for a lower interest rate if you have to finance less of the home purchase.
- You won’t need private mortgage insurance. A 20% down payment means you don’t have to buy private mortgage insurance.
- You may be able to lower your monthly payment. Since you’re borrowing less, your payments may be lower than they would be if you financed the entire purchase.
- Make up for less-than-stellar credit. Many lenders require borrowers with less favorable credit to come up with a larger down payment.
There are many different mortgage programs, and we can find the terms to meet your needs. It’s always in your best interest to discuss all of your options with a mortgage professional prior to making any decisions. Please contact Mary Kathryn or Gina, or call our office at 804.897.3700 to discuss the best solution for your mortgage needs. [fb_button]
Here’s our February email on strategies to save for a down payment.