Is the Era of 20 Percent Down Payments Over?
Purchasing a home in California is not an impulse buy. From appraisals and inspections to closing costs and down payments, it can take years to save the upfront cash required. However, thanks to low-down-payment loans now on the market, homeowners can have keys in hand to that home for sale with significantly less cash out the door. But is getting a mortgage in California with little to no money down a good financial move? Is the choice to make a lower down payment, and have cash remaining to invest in the home or elsewhere, or stretch yourself thin to put 20 percent down best?
Types of loans
Reserved for active-duty and honorably discharged service members, reserves, and National Guard members with at least six years of service, as well as spouses of service members killed in the line of duty, VA loans require 0% down and no private mortgage insurance.
Also known as the “rural housing loan,” this 0%-down loan is meant to help low- to moderate-income households in eligible areas that are in need of housing, but who may be unable to qualify for other loans.
With more lenient approval requirements than conventional loans, FHA loans also require as little as 3.5% down. However, mortgage insurance premiums will have to be paid for the life of the loan.
It’s possible to get a conventional loan with as little as 3% down, but just as with FHA loans, there’s an additional requirement of private mortgage insurance. However, once you reach 20% equity in the home, this additional cost can be dropped.
Piggyback loans, also known as 80/10/10 or 80/15/5 loans, are best for those with good credit and at least 5% down. These loans require between five and ten percent down. Typically, you get an 80% first mortgage, a 10% second mortgage and put 10% down. This eliminates the need for mortgage insurance.
Down Payment Assistance Programs
These programs are swiftly gaining popularity. Government-run programs, plus approved non-profits, offer gifts and no-interest loans to support home ownership in select communities. Nearly 90% of all single-family homes in the U.S. are eligible for some kind of DPA. All the major loan types mentioned above allow the borrower to apply DPA funds toward the required down payment, if any, and in some cases, closing costs.
Pros and Cons of the Old Standard
Pros of Putting Down 20% on a Home Purchase
- Lower loan amount
- No mortgage insurance
- Lower mortgage rate
- Pay less interest
- Ability to tap equity
- Lower closing costs
- Better chance of getting your offer accepted
- More loan options
Cons of Putting Down 20% on a Home Purchase
- Requires a lot more money up front
- Little leftover for repairs/maintenance
- Money tied up in the home that could lose value
- Could invest money elsewhere for a better return
- Inflation makes money worth less over time
How Do I Check My Eligibility?
You can discover your eligibility for a low or zero down home loan in California by talking to a lender or submitting your application online for review. You should know what type of loan you qualify for within 24 hours. Lenders review your income, credit, and other factors to determine your eligibility for certain programs. Compare mortgage rates and determine what you qualify for. Mortgage quotes are available with no obligation to proceed, and no social security number required to get started. Traditionally 20% has been the standard, but more options and different financial circumstances put this to the test. Fully explore loan options available to you before deciding on the down payment amount that suits you and your situation best.
Golden State Mortgage Can Help
Lone Star Financing is a California-based mortgage company specializing in new home purchases and mortgage refinance. Whether a FHA, VA, or USDA Loan, we have you covered with loan options for almost every lending need. With in-house underwriting, we can make fast decisions—and, we strive to close all loans in 28 days or less. Low Rates. Low Fees. Fast Closings—Call Golden State Mortgage today at 1-800-585-6886 or fill out the quick contact form to speak with a mortgage loan consultant to get a free good faith estimate.