One of the biggest misconceptions of purchasing a home is the idea that you need a 20% down payment. This is far from the truth. My goal is to show you that you can get the home you want, in the location you want, without breaking the bank! I will do this by walking you through the different loan types that offer as little as 3% down toward the purchase of your first home. While also going over one of the little-known programs that can offer complete coverage of your down payment!
The first loan we will walk through is the conventional loan. Usually for a conventional loan you would need a 5% minimum down payment, but for first-time home buyers you only need as little as 3% down. Conventional loans are available through private lenders, such as banks, credit unions, and mortgage companies. They are backed by the market, and not the government.
One of the great advantages of a conventional loan is the fact that you can get rid of private mortgage insurance (PMI) even with a low down payment. When purchasing a home with less than 20% down it is required that you have private mortgage insurance & will become a part of your mortgage payment. Essentially, It protects your lender if you stop making payments on your loan. But, once you reach 20% equity on your home your PMI can be canceled.
The other loan I will walk you through is a FHA loan, which is a loan backed by the government. This loan requires a minimum down payment of 3.5% and also has much looser financial requirements. With this type of loan lower credit scores are more likely accepted, and lower interest rates.
The downside of an FHA loan is the fact that PMI is financed into the loan and there is no way of getting out of the payment down the line. FHA borrowers also pay an annual mortgage insurance premium, which is based on the term (length) of your mortgage, your loan-to-value (LTV) ratio, your total mortgage amount and the size of your down payment.
Another way that you do not have to pay 20% down is through a first-time home buyer program called Communities First. This program allows you 3, 4, or 5% Down Payment Assistance options to give you more flexibility to choose only what you need to keep interest rates low. Communities first provides first mortgage financing, down payment / closing cost assistance, and grants to eligible homebuyers.
The great thing about this program is that there are unlimited opportunities to gain assistance, no additional paperwork is needed, and none of the money has to be paid back!
