Purchasing a home is not an impulse buy. The upfront cash required can take years to save when you consider appraisals and inspections and closing costs and down payment. However, homeowners can sign the papers and own a home with significantly less cash out the door, thanks to low-down-payment loans on the market. You have to decide if purchasing a house with little to no money down a good financial move for you. Will you be stretching your budget or depleting your savings by making a 20% down payment? You can have cash remaining to invest in the home by making a lower down payment.
VA loans: VA loans require 0% down and no private mortgage insurance. Be aware they are reserved for active-duty and honorably discharged service members, Reserves, National Guard members with at least six years of service, and spouses of service members killed in the line of duty.
USDA loans: Meant to help low- to moderate-income households in eligible areas that are in need of housing but may be unable to qualify for other loans, the USDA Loan (also known as the rural housing loan) requires $0 down payment.
FHA loans: FHA loans also require as little as 3.5% down and have more lenient approval requirements than conventional loans. During the entire mortgage term, however private mortgage insurance is required, so you have that expense on top of your mortgage.
Conventional loans: If you have stellar credit, it’s possible to get a conventional loan with as little as 3% down. Because lenders view this as a riskier loan, private mortgage insurance will be required. This additional cost can be dropped in some areas once your equity in the home reaches 20%.
Piggyback loans: Best for those with good credit and at least 5% down are Piggyback loans, also known as 80/10/10 or 80/15/5 loans. These loans require between five and ten percent down. Typically, you get an 80% first mortgage, a 10% second mortgage, and put ten percent 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 homeownership 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 of 20% down
- The overall loan amount is lower
- Private mortgage insurance not required
- Lower mortgage payments
- Less interest over the term of the loan
- Can use gained equity
- Closing costs lowered
- Greater offer acceptance rate
- More loan options
Cons of 20% Down
- Requires significant amount of cash
- Little or nothing left for maintenance or repairs
- Funds could potentially lose value
- Money could be better invested elsewhere for larger return
- Inflation will make that initial amount worth less over time
Compare mortgage rates to estimate what you qualify for. With no obligation to proceed, and no social security number required to get started, mortgage quotes are available so you have an idea of the amount of money you’ll be spending. Talking to a lender or submitting your application online for review, is how you can discover your eligibility for a low or zero down loan. Within 1 to 3 days you should know what type of loan you qualify for. To determine your eligibility for certain programs, lenders review your income, credit, expenses, employment history and other factors.
More options and different financial programs have put the 20% down tradition to the test. Before deciding on the down payment amount that suits you and your situation best, fully explore loan options available to you.
Golden State Mortgage Can Help
At Golden State Mortgage, we are a California-based mortgage company. We want to help you through every step of financing your new home. Fill out the quick contact form or call Golden State Mortgage today at 1-800-536-8171 to speak with one of our California mortgage specialists and get a free good faith estimate.