Buying a home is a major step, whether you are purchasing a starter property or moving into your dream home. You can make this process easier by ensuring that you have the right down payment to meet your goal. However, there are no carved-in-stone minimums when it comes to securing a mortgage.
No Set Minimum
There really is no set minimum down payment required to buy a home with a mortgage. While you may be under the impression that you need a 10- or even 20-percent down payment to buy your own diggs, this is a misconception. Many lenders will take far less than 10 percent, and some make it possible to get into your home with little down.
Your Personal Minimum
Your lender will specify a minimum down payment just for you, based on your unique situation. Your minimum will depend on such factors as your credit and income, as well as the mortgage amount you are seeking and the value of the property. For example, one loan program may require a 3-percent down payment from you because of your good credit history but may request 10 percent from a less financially stable loan applicant.
Avoiding Private Mortgage Insurance
You may see private mortgage insurance (PMI) as an unnecessary expense you don't want hanging over your head. In such a case, you may decide to provide a higher down payment than the minimum required by your mortgage company. To get away without paying PMI, you'll need a mortgage that is 80 percent or less of the home's value. This means you will have to make a minimum down payment of at least 20 percent of the purchase price.
If you are going for a conventional loan, which is a loan that isn't backed by a government program, you may be asked to put about 5 percent down. This is the basic minimum many lenders set for conventional mortgages. Still, the amount you'll need depends on your unique financial status and the property you choose.
Government Program Loan Minimums
If you have less than 5 percent saved for a down payment on a mortgage loan, find out whether you qualify for a Federal Housing Administration (FHA) loan. These loans typically require less money down than those offered through conventional lending programs. With an FHA loan, you could own your own home with as little as 3.5 percent down. If you or your spouse is a veteran, however, seek a loan through the Department of Veterans Affairs, and ask about the no money down option.
Piggy Backing Loans
No, piggy backing is not a game. It's a way to put no money down and avoid PMI. With this situation, you obtain a first mortgage for 80 percent of the home value and a second mortgage for the other 20 percent. This may sound sneaky, but it's legal. The catch is that the interest rate on your second mortgage is likely to be very high.
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