How Much Down Payment Do You Really Need?
There’s a common misconception among many people interested in buying a home that the only way to get a mortgage these days is that you need a 20 percent down payment.
Everyone’s circumstances will be different and different lenders offer a variety of loan options, but if you think that owning a home isn’t possible because you don’t have 20 percent to put down, think again.
If you’re an active duty or retired military member or spouse, you’re eligible for a VA loan which doesn’t require any money down. Reservists and National Guard members who’ve been in for six years or longer, are eligible, too. You won’t pay a down payment or mortgage insurance and you’re not automatically disqualified for less-than-great credit.
How does a 3.5 percent down payment sound? If you get an FHA loan, that’s the lowest down payment you’ll need to make. FHA loans are mortgages insured by the Federal Housing Administration (FHA). You must use an FHA-approved lender but many lenders are, so shop around for the best rate. FHA loans allow people with slightly lower credit scores (minimum of 580) to take advantage of a lower down payment. You can use your savings, a cash gift from a family member, or monies from a down payment assistance program.
Be aware that you will pay for mortgage insurance for the life of your FHA loan. The amount will depend on the length of your loan and how much equity you have.
Every lender has their own loan programs. You can find loans with three percent down, five percent down, and in some cases, zero percent down. These loans often have strict credit requirements so not everyone will qualify. If your credit is good but your savings account is small, this could be an option for you. Until the loan-to-value (LTV) hits 80 percent, you’ll be required to pay private mortgage insurance. Anyone in the market for condos or jumbo loans ($417,000 in the Tampa Bay area) may be required to make a higher down payment, depending on the terms of the loans available.
The Advantages of Putting 20 Percent Down
You don’t have to wait until you’ve saved enough for 20 percent down to find a mortgage and buy a home. Plenty of moderate to low-income buyers and buyers with great credit are able to own a home with very little down. That doesn’t mean there aren’t advantages to making a 20 percent down payment.
- No private mortgage insurance to pay
- Lower mortgage payments
- More equity sooner
Which loan is right for you? You’ll have to discuss your options with a mortgage lender to know for sure. The bottom line is this: If your credit is decent and you have some savings built up, you can own a home in Tampa Bay even without 20 percent down.