A common misconception among home buyersÂ is that you'll need 20 percent down in order to qualify for a home mortgage. This is untrue. You don't need to make a 20 percent downpayment.
In fact, not only do you not need 20 percent down, but no money down mortgages are still available to millions of U.S. buyers.
Today's home buyers have plenty of choices when 20 percent down is not an option.
Let's start with the differences between downpayment and earnest money deposit.
Earnest money is a deposit made on the home you want to buy. Itâ€™s generally paid at the time an offer is being submitted as a sign that you are earnest (i.e. serious) about wanting to buy the home.
A downpayment, on the other hand, is a percentage of the sales price that a lender requires the home buyer to pay from reserves. Downpayments can come from a bank account, a stock fund, an inheritance, or a retirement portfolio.
Downpayments can also come from a family member in the form of a gift.
Downpayment requirements will vary based on your loan. Loans for a primary home will have different downpayment requirements as compared to secondary or investment home.
The type of loan you choose can affect your downpayment, too. Conventional, FHA, VA, and jumbo loans each feature varying downpayment minimums, and the property type of your home will play a role, too.
Conventional loans require buyers to make a minimum 5 percent downpayment on a home. Because this is a conventional loan, and because the downpayment is less than twenty percent, private mortgage insurance (PMI) will be required.
PMI can be paid monthly with the mortgage; in a lump-sum at the time of closing; or "built-in" to your mortgage rate (LPMI).
In general, the smaller your downpayment and lower your credit score, the higher your PMI rate will be.
Backed by the government, FHA loans have been popular with U.S. buyers since their launch in 1934.
FHA loans require just a 3.5 percent downpayment and are often more appealing than comparable conventional loans because of their less stringent route through underwriting. FHA loans are more forgiving with respect to credit scores, income and assets.
The FHA loan's flexible underwriting standards make it an appealing financing option -- especially for first time home buyers.
Available to most U.S. buyers, the FHA features a special "$100 down" loan with accompanying low mortgage rates.
Via the program, buyers can grab HUD-owned homes at steep discounts. In order to use the $100 down program, buyers must purchase a home which was previously financed via the FHA and which has since moved into foreclosure.
Your real estate agent or lender can help you to identify eligible U.S. homes.
The VA loan is another government-backed loan. Guaranteed by the Department of Veterans Affairs, it's a program allowing for no downpayment whatsoever.
To be eligible for a VA loan, you must have served in the U.S. Armed Forces, or have been a member of the National Guard or Reserves. In some cases, spouses of deceased veterans are eligible as well. VA underwriting is very similar to FHA underwriting in terms of leniency.
However, VA loans stand apart because they require zero downpayment and no mortgage insurance whatsoever.
The U.S. Department of Agriculture (USDA) also offers a zero-downpayment mortgage.
The USDA's Rural Housing loan is meant to help people buy property into non-urban areas nationwide. Most "modest homes" are eligible and homeowners are generally restricted to a "modest income". USDA loans are available in all 50 states and underwriting guidelines are similar those with the FHA and VA.
There is a small mortgage insurance premium associated with USDA loans which less than with a comparable FHA loan and higher than a comparable VA loan.
When trying to determine how much to put down on a home, in addition to the minimum downpayment requirements, itâ€™s important to understand how your downpayment will affect your monthly mortgage payment and obligation.
Conventional wisdom says that the bigger downpayment you can make, the better. This results in a smaller monthly payment and less money owned. However, wiping out your savings or retirement account to make a big downpayment is rarely a wise choice.
Do your homework on downpayment options. Compare today's mortgage rates and mortgage programs and see for what program's you're eligible. At today's low rates, there are a lot of terrific choices.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Don B. Retired
The Mortgage Reports has helped me so much. I can't thank you enough.
I enjoy reading The Mortgage Reports. The articles are informative with lots of good stats and trends.
Theresa D. President, Title Services
The Mortgage Reports gives me an overview of what's happening with mortgages both locally and nationally. I really enjoy it.
2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)