Tell any well-meaning friend or relative that you’re buying a home and be prepared for a ton of advice. Some of it may be good, but the old thinking that you need 20% down to buy a home simply isn’t true.
Susan Ciapparelli, Senior Loan Officer at American Security Mortgage, states: “Only 1 in 4 of my clients are putting 20% or more down when home buying.”
Why? There are many loan programs available to assist buyers in obtaining the American dream without completely depleting their savings.
For example, FHA loans only require a 3.5% down payment, and the lending guidelines are less stringent than with conventional loans. So, if your credit score is less than ideal, you can still qualify for a mortgage. Additionally, FHA loans may be assumable, so when it comes time to sell, a buyer could assume your interest rate making your home much more attractive to purchase, especially given the historically low interest rates we’re seeing today. Loans issued by the Veterans Administration require 0% down and may also be assumable. (Of course, you need to be a U.S. veteran to qualify.) On a conventional loan, you can put down as little as 3%, so for example, on a $565,000 sales price you can put down as little as $16,950.
Let’s also talk about mortgage insurance, also known as PMI (private mortgage insurance). Many buyers fear mortgage insurance simply because they don’t understand it. With conventional loans, your lender will require this insurance if you’re putting less than 20% down to protect themselves if you stop paying the mortgage. Mortgage insurance is based on your credit score and a few other factors. If you have great credit, your monthly PMI could be very low, freeing up your money to make improvements to your new home. Additionally, PMI can be paid in one lump sum at closing; financed in some cases or credited, instead of having monthly payments.
My advice? Have a loan officer run different scenarios using a variety of loan programs to determine the best down payment option for you; each person’s scenario can be drastically different.
Lynn Cooper is a licensed REALTOR in Virginia with McEnearney Associates in McLean. Whether buying or selling, Lynn is 100% committed to her clients before, during, and after the transaction. Connect with Lynn at 202-489-7894, [email protected] or @lynncooperrealestate.