If you’re thinking of buying a house, you may have probably heard that you need a 20% down payment to make a purchase. While it is advisable to have a sizeable initial payment, it isn’t actually necessary to hit the 20% mark if you want to become a homeowner. After all, not all buyers or homeowners have a large chunk of cash lying around when they applied for a mortgage.
Having a 20% down payment has become a misconception for years, and is one of the reasons many potential buyers (including first-timers and Millennials) forgo homeownership. If this is the same for you, note that you can still buy a home with a down payment of 3% to 5%. This is especially true for both government-backed loans (FHA and VA), as well as conventional loans.
The Deal with PMI
Altius Mortgage Group and other home loan companies in Utah note that the biggest concern about having a down payment less than 20% is the need to pay private mortgage insurance (PMI). This protects the lender in case you default on the loan. Being willing to pay the monthly bill for PMI, however, allows the lender to offer your conventional mortgages with a 5% to 10% down payment. This is ideal if you want to skip or don’t qualify for government-backed loans.
It Isn’t the Worst Thing
PMI may have a bad reputation, but isn’t necessarily a bad thing. This is because it gives you an opportunity to buy a house with a little money down. If you want to buy a home now instead of waiting until you can accumulate a larger down payment, paying for PMI makes sense. You can then remove PMI or stop paying for it until you pay 20% of the home’s purchase price.
Help is Available
Down payment assistance is also available if you’re looking for financial help. You can ask your parents to pitch in if they have the means to do so. Gifted money can also be added onto your initial payment, but be sure to ask your lender about the rules for using gifted cash as down payment. You can also ask your lender or real estate agent about other assistance programs that you may qualify for.
If you’re serious about buying a home now but don’t have a 20% down payment, don’t be discouraged. Talk to a reliable home loan lender to learn more about the mortgage options that suit you.