A down payment of 20% or more has been the ideal amount to put down on a home for quite some time. It is a robust number that shows financial stability and puts a home buyer in an excellent position for loan approval, affordable monthly payments and immediate equity accrual. If you don’t have 20% to put down, which is far more than most of us can comfortably put down, your dream of home ownership is not over – far from it. 20% is ideal, but not the norm. The average home price in Maryland is $250,000 and 20% of that number is 50,000. Who has that?
So, how much of a down payment do you really need to buy a new home?
Home Down Payment of 3.5 Percent
If you choose an FHA loan, you could give a down payment as low as 3.5%. FHA loans are mortgages that are insured by the Federal Housing Administration. These loans require borrowers also to pay for mortgage insurance, which protects lenders from loan defaults. The insurance allows lenders to offer lower interest rates and more flexibility when deciding who is qualified, which makes these loans very attractive for buyers without a large down payment and those with less than stellar credit. You will still need enough to pay the upfront premium of 1.75% for the insurance, but that is far less than 20% of the cost of an entire home.
Home Down Payment of 5-19 Percent
Conventional loans can be had at as low as 5% down. Again, you will need to take out insurance; this time in the form of PMI or Private Mortgage Insurance. The difference between this type of loan and the FHA is that a conventional loan allows you to discontinue the PMI after 24 months if you have accumulated 20% equity in your home. It is important to remember that the lower your down payment, the higher your interest rates and fees to the lender at closing. It is always in your best interest to pay the highest down payment you can comfortably afford.
Not Putting Down a Home Down Payment
That’s right. You can get a loan for 0%, but only in a few specific cases. If you are an eligible U.S. veteran, you could qualify for a home loan with the U.S. Department of Veterans Affairs or the VA. The U.S. Department of Agriculture (USDA) also has a loan program for eligible citizens looking for homes designated as rural.
Get Help Negotiating a Home Down Payment
When it comes to the down payment, don’t be daunted. You don’t need to be wealthy to get into your dream home. Do your research and weigh all of your options. If you are already renting a place for the same amount a mortgage payment would be and you know you want to live in your city long term, what are you waiting for? But if you need some assistance managing the stresses of planning to buy a new home, contact the real estate agents at the Northrop Team!