Why You Don’t Need A 20% Down Payment For A Home

There was a time when homebuyers, first-time or tenured, were always encouraged to abide by the golden rule of thumb; to have at least 20% for a down payment saved for the desired home. For example, if the home was listed for $300,000 then a $60,000 down payment was ideal. Luckily, those days are long gone and the industry has shifted to benefit homeowners that may not be able to come up with a hefty down payment. 

First, we need to assess where you are in the home buying process as well as your experience with owning a home. Are you a first-time homebuyer? Are you currently renting an apartment and don’t have the means to save for a down payment? Do you already own a home and looking to move into a new one? 

For instance, if you already own a home and are looking to get into a new one but simply don’t have excess cash in the bank for a down payment, do not worry. You may have enough equity in your current home to help pay for your next one.  ‘What is equity?’, you may ask. The equity of a home is the value of the homeowner’s interest in their home, that’s right – – value. This means if you have built up enough equity, you can use this type of value to pay for your next home once you sell the current home. 

But what if you’re a first-time homebuyer? 

We got you. Keep scrolling. 

There are various types of mortgages or home loan programs that do not require a 20% down payment. ‘But if I don’t put down a large down payment, won’t that make my interest rate on my loan increase?’ No. In fact, You can still lock in a great interest rate while putting down as low as  2%-4%. 

Conventional Loan

  • For a primary residence purchase, you can put down as low as 3% down
  • The Debt-to-Income ratio can be as high as 45%
  • Qualifying guidelines are more strict than an FHA loan 
  • If the down payment is less than 20%, requires a monthly mortgage insurance (MI)

FHA Loan

  • Requires only 3.5% down
  • Qualification guidelines are more flexible
  • Requires up-front & monthly mortgage insurance (MI)

USDA Rural Housing Loan

  • 0% down!
  • USDA low closing costs
  • Qualification guidelines are more flexible
  • Low monthly mortgage insurance

VA Loan

  • No down payment required!
  • Only available to eligible veterans only
  • VA up-front funding fee, but no monthly mortgage insurance (MI)
  • Subject to VA eligibility rules

If those programs aren’t enough to convince you that owning a home without putting down 20% is possible, there are also state, county and city specific programs available that may fit your needs even better. Take a look at our down payment program comparison chart below for Arizona Programs!

 

As you can see, low-down loan programs are available but if you’re not sure which one is best for you , we highly recommend you give any of our experienced loan officers a call to get you pre-qualified with the best program fit for you and your family. Give us a call today at (480) 832-4343 or fill out an application here: https://www.sunamerican.com/apply-now 

 

 

References:

https://www.forbes.com/sites/trulia/2014/04/02/dont-have-a-20-down-payment-for-a-home-check-out-these-alternatives/#7db412e437a8

https://themortgagereports.com/20594/downpayment-options-less-than-twenty-percent

https://www.staplesgroupmortgage.com/loan-programs/