Is a down payment standing between you and your dreams of homeownership? Most people think you need at least 20 percent down in order to buy a home. But that isn’t always the case. In fact, it’s quite possible to pay much less than 20 percent — or even nothing at all. Sound too good to be true? It’s not! Here’s what you need to know.
Shop around for a mortgage
While most conventional loans require buyers to put down 20 percent on a home, there are several loans that don’t. Aside from conventional loans, you should spend time investigating loans that are backed by the federal government. While the government doesn’t loan the money, they do guarantee the loans should you default. One of the most popular federally-backed loans is an FHA loan. This mortgage is guaranteed by the Federal Housing Administration and many buyers qualify for down payments of as little as 3.5 percent. If you’re a veteran, then you could score an even better deal. VA loans that are backed by the Veteran’s Administration offer mortgages that require no money down. The same is true for USDA loans. Each of these programs has certain requirements that must be met in order to qualify. But if you do qualify, they are a great choice.
Research financial assistance programs
If you’re a first-time homebuyer, then you have even more resources at your disposal. You may qualify for financial assistance programs that help to offset the cost of your down payment — or eliminate it entirely. The availability of these programs varies by location, so talk to a local real estate agent or mortgage broker to see what’s in your area. Some of these programs also cover closing costs.
Refinancing can eliminate PMI
When you put less than 20 percent down on a home, then you’ll be required to pay private mortgage insurance (PMI). These payments are in addition to your monthly mortgage payments. But be aware that once you’ve got 20 percent equity in your home, you can refinance which will eliminate those PMI payments. You may also be able to get a loan with a better interest rate than your original loan.
Saving for a down payment
If you still feel like you don’t have enough for a down payment, then consider alternative ways to save that money. Some of the ways you can quickly increase the amount you have available for a down payment include:
- Automating your savings plan so contributions are automatically deducted from your bank account.
- Paying down high-interest debt or refinancing existing debt.
- Saving tax returns and stimulus money.
- Selling items from your home you no longer use.
- Reducing your expenses by moving into a smaller apartment or selling an extra vehicle.
- Asking for a raise at work.
- Accepting a monetary gift from a family member (hey, Christmas is right around the corner).
- Skipping a vacation and taking a staycation instead.
- Finding a side hustle and saving all the income from that job.
- Rent out a spare room in your home or even a parking space.