Figuring out how much money to use as a down payment can be confusing. That’s why Success Mortgage is here to help. While the route for each buyer or investor depends on their situation and personal preferences, our home loan specialists can help you determine the best course of action for you.
Low Down Payment Options
With the help of Success Mortgage, you can purchase a single-family home or condominium with as little as 3.5% down payment using an FHA loan. However, there is a price for lower down payments on conforming loans: mortgage insurance (often called PMI, or private mortgage insurance).
Mortgage insurance is required when the conforming loan amount is MORE than 80% of the purchase price (practical translation: down payment is less than 20%). Also, the lower the down payment, the higher the premium ratio charged.
Is your dream home surrounded by pasture and farmland? Buyers in rural and suburban markets may be able to benefit from a USDA loan, which requires no money down.
Household income limitations still apply, and buyers should expect to pay PMI if their down payment is less than 20%.
Military veterans who qualify for a VA loan can purchase a home with no money down. In fact, VA loans can provide up to 100% financing for qualified military personnel and veterans.
There are also non-conforming mortgage loan programs available that allow for 80/20 set-ups, which allow borrowers to obtain a second mortgage to cover the 20% down payment.
Even if you have a lower income and less-than-perfect credit, we encourage you to consult with one of our home loan experts. We may have an affordable mortgage program that fits your needs!
How Much Should I Use for a Down Payment?
There are costs and benefits to any option, including those with low down payments. You should carefully consider your options and discuss your plan with a professional.
Talk to one of our loan specialists today to come up with a customized solution that best fits your needs and budget. We look forward to helping you feel more confident about becoming a homeowner!
Cost of a Lower Down Payment
Unfortunately, lower down payments typically come at the cost of higher monthly payments. Low or no down payment programs have two primary factors that result in a higher monthly payment:
- Higher interest rates
- Higher mortgage insurance premiums.
The good news is that mortgage insurance can be removed once sufficient equity is produced. For example, if the property shows at least 20% equity in a few years, the mortgage insurance can be refinanced away.
Benefits of Lower Down Payments
Though the disadvantages of low down payments seem serious, there are also plenty of advantages. Take time to weigh the two and assess which is the best for you.
The chief benefits of lower down payment include the following:
- Less money out of pocket at the time of purchase.
- Higher rate of return. Your property’s appreciation will be the same whether you put 3%, 5%, or 20% down. In fact, your rate of return actually decreases as you make a larger down payment, as discussed below.
- Opportunity cost. In some cases, the smart investor can make more money from available cash by placing it in other investments.
During the first few years of the mortgage loan, the bulk of your monthly payments go towards paying interest – which is usually tax-deductible. So you get quite a bit of your monthly payments back at the end of the year in the form of tax deductions.
Carefully consider the amount of money that you want to put down. Your lender will qualify you for a certain level based on your income; however, that amount may be different from the level that you feel comfortable paying each month. You must decide what you can afford.
If you’re interested in acquiring a low down payment mortgage, talk to a loan officer at Success Mortgage to determine the best decision for you. From FHA loans to VA loans, we can explore your loan options and find the one that best suits your situation!