The down payment likely will be your largest expense when you purchase a home. However, contrary to what you may have heard or read online or in the media, it's not true that you need to bring in 10% or 20% to the closing table as a down payment. Depending on what type of mortgage financing you select, it's actually possible to buy a home with far less down than that.
During the housing boom last decade, anybody who could fog a mirror could buy a home with zero down, but those days are pretty much gone. Today, lending standards are much tougher than they used to be, so most prospective home buyers should expect to bring in at least something as a down payment. However, having said that, there are still some great loan programs out there that offer much smaller down payment terms than you may expect.
Mortgage lending these days is usually underwritten to either Fannie Mae or FHA guidelines, which are the dominant sources of financing today. The following is a rundown of the down payment requirements for both.
1) Fannie Mae financing: For borrowers with excellent credit, Fannie Mae requires just a 3% down payment. If your credit is not excellent, expect to come in with at least 5% down payment. Understand that if you make a down payment of less than 20%, Fannie Mae guidelines require that you carry mortgage insurance.
2) FHA financing: If your credit is less than stellar, FHA financing is probably your better option for a home purchase. FHA guidelines are not as strict as Fannie Mae guidelines, so it is much easier to qualify if you have lightly bruised credit or a relatively recent foreclosure, short sale, or bankruptcy. FHA requires just 3.5% as a down payment.
FHA is a great mortgage option for a home purchase, but it's not without some compromise. Note that you'll be required to pay for two types of mortgage insurance regardless of how much you bring as a down payment: annual mortgage insurance (MIP), and upfront mortgage insurance premium (UFMIP).
UFMIP is charged as a percentage of the loan amount just once at loan closing (and can be financed into the loan) and MIP is renewed annually and paid in 12 equal payments as part of your regular mortgage payment.
Contrary to what you may have heard or read, FHA loans are not just for first-time homebuyers. You are very likely eligible for an FHA loan even if you've owned a home in the past.
Hopefully this has shined a little more light on the topic of down payments. Contrary to what you may have heard or read in the media or online, it's absolutely not true that you need to bring in 10% or 20% down to buy a home. Keep in mind, however, that you'll also need cash on hand to cover the setting up of your impound account (so your lender can pay your taxes and insurance for you), closing costs, and any inspections (such as appraisals, pest inspections, home inspections, etc.).
Note also that you can often negotiate with the seller to cover all or a portion of your closing costs. Happy house hunting!
During the housing boom last decade, anybody who could fog a mirror could buy a home with zero down, but those days are pretty much gone. Today, lending standards are much tougher than they used to be, so most prospective home buyers should expect to bring in at least something as a down payment. However, having said that, there are still some great loan programs out there that offer much smaller down payment terms than you may expect.
Mortgage lending these days is usually underwritten to either Fannie Mae or FHA guidelines, which are the dominant sources of financing today. The following is a rundown of the down payment requirements for both.
1) Fannie Mae financing: For borrowers with excellent credit, Fannie Mae requires just a 3% down payment. If your credit is not excellent, expect to come in with at least 5% down payment. Understand that if you make a down payment of less than 20%, Fannie Mae guidelines require that you carry mortgage insurance.
2) FHA financing: If your credit is less than stellar, FHA financing is probably your better option for a home purchase. FHA guidelines are not as strict as Fannie Mae guidelines, so it is much easier to qualify if you have lightly bruised credit or a relatively recent foreclosure, short sale, or bankruptcy. FHA requires just 3.5% as a down payment.
FHA is a great mortgage option for a home purchase, but it's not without some compromise. Note that you'll be required to pay for two types of mortgage insurance regardless of how much you bring as a down payment: annual mortgage insurance (MIP), and upfront mortgage insurance premium (UFMIP).
UFMIP is charged as a percentage of the loan amount just once at loan closing (and can be financed into the loan) and MIP is renewed annually and paid in 12 equal payments as part of your regular mortgage payment.
Contrary to what you may have heard or read, FHA loans are not just for first-time homebuyers. You are very likely eligible for an FHA loan even if you've owned a home in the past.
Hopefully this has shined a little more light on the topic of down payments. Contrary to what you may have heard or read in the media or online, it's absolutely not true that you need to bring in 10% or 20% down to buy a home. Keep in mind, however, that you'll also need cash on hand to cover the setting up of your impound account (so your lender can pay your taxes and insurance for you), closing costs, and any inspections (such as appraisals, pest inspections, home inspections, etc.).
Note also that you can often negotiate with the seller to cover all or a portion of your closing costs. Happy house hunting!
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