For many, getting together the money for a down payment is the biggest hurdle to buying a home. Fortunately, there are programs and mortgage companies that will allow you to get a mortgage with a 10 percent down payment, or sometimes less. Determining whether this is the right choice for you depends on a number of factors.
Effect of Down Payment
The amount of your mortgage has a big effect on your monthly payment. If you can only put 10 percent down on the cost of your home, you'll have a larger principal balance, which will result in higher monthly payments. These higher payments are in addition to the other costs of your mortgage, including property taxes and private mortgage insurance. You can get a loan with a 10 percent down payment, but the lender will judge your ability to afford the loan based on the total monthly payment. This means that you'll qualify for a lesser loan than if you paid a 20 percent down payment.
Low Down Payment Programs
If you're a veteran, you can get a mortgage with no down payment, so the 10 percent equity you'll have in your home would be nice. Additionally, mortgages backed by the Federal Housing Administration allow you to purchase a home with as little as 3.5 percent down. Banks also offer various programs for those with less than a 20 percent down payment.
Lenders don't solely judge whether or not you can get a mortgage by the amount of money you have available to put down. Your credit score and verified income sources will have a much larger effect on whether or not the bank will give you a loan. If you are lacking in these areas, a bank may require a higher down payment to make up for the deficiencies.
Private Mortgage Insurance
When you purchase a home with less than 20 percent down, you should expect to pay private mortgage insurance (PMI). This protects the lender in case you default on the loan, but it's an added expense for you. Fortunately, you can cancel this insurance once you've paid down the principal balance of your loan to the point where you have at least 20 percent equity in the home.
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- Rules About PMI & Decreasing Home Value
- What Is Primary Mortgage Insurance?
- Minimum Down Payment for a Mortgage