Q: How much money do I need for a down payment?
A: Most people think you need a 20% down payment to buy a home. While it's great if you have that much cash on hand, we know it's not always possible. It's true you'll most likely get the best rates with a large down payment, but it's also good to know you can still achieve the dream of homeownership with a much smaller down payment. Let's take a look at the low- and no-down payment loan options we offer:
No-Down Payment Loan Options
USDA Rural Development: 0%
With the USDA Rural Development option, you can borrow 100% of the appraised value. This means you don't need to come up with the down payment. In fact, you can actually borrow 2% more than the appraised value, and use the extra funds to make some light repairs or home improvements. The main requirement for a USDA Rural Development mortgage is that the property must fall within certain geographical areas, outside the city limits of major metropolitan centers.
VA Loans: 0%
If you’re an active or retired member of the U.S. Armed Forces, you may qualify to buy, build or refinance a mortgage with a VA loan. You can also use the VA loan for energy-saving improvements (approved by your lender and VA) of a home. VA loans share similar eligibility requirements as FHA loans, often with lower closing costs, more liberal terms and even negotiable interest rates. If you qualify, the VA will issue a certificate of eligibility that you can provide a lender when you submit your home loan application.
Low-Down Payment Loan Options
FHA: 3.5% down
If you have less-than-perfect credit and are looking for a loan with a lower down payment, an FHA loan - backed by the Federal Housing Administration - may be the answer. Customers like FHA mortgage loans because they have more liberal qualification requirements. In addition to their lower down payment requirement (3.5%), they offer lower monthly insurance premiums and often have lower closing costs.
FHA 203(k): 3.5% down
One of the most popular and diverse home improvement loans is the FHA 203(k). The down payment requirement is 3.5% of the purchase price. You can make home improvements to the house you want, or the home you already own. Use the funds for simple upgrades to your home like a kitchen or bath improvement, or to completely reconstruct a home that is presently unlivable. You can even use a 203(k) loan to tear down an existing structure and build a new one using some portion of the existing foundation.
Conventional: 5% down
A 20% down payment is cited as the norm for a conventional mortgage. However, as little as 5% can be used. You'll just likely pay higher interest and you'll have to pay mortgage insurance. If you're a homebuyer with a higher credit score and debt that is below 50% of your gross monthly income, this loan could work for you.
HomeReady Conventional: 3% down
If you're a first-time homebuyer with great credit, you may qualify for our HomeReady Conventional loan. The 97% financing option (3% down) and low mortgage insurance coverage are just two of the benefits as compared to the traditional conventional loan. HomeReady also allows you to accept gift funds from family members to help out with your down payment and closing costs.
How Much Down Payment?
Example: Bob and Jane are buying a house that will cost $177,000. Depending upon which home loan is the best choice for them, they can expect to make the following down payment:
Home price: $177,000
USDA Rural Development: 0% down payment = $0
VA (Veterans): 0% down payment = $0
FHA down payment: 3.5% down payment = $6,195
Conventional mortgage: 5% down payment = $8,850
HomeReady conventional: 3% down payment = $5,310
Loan programs listed above are for general informational purposes only and are not intended as an advertisement for loan products, nor a commitment to lend. Figures above represent fixed-rate, 30-year repayment term mortgage examples. Please contact us for an exact quote and for more information on fees and terms. Not all applicants will qualify.
Don't forget your closing costs
Keep in mind that when you're buying a home you'll also need money to cover your closing costs. Closing costs are fees that you pay to get a mortgage. These can include appraisal, title services, credit report, attorney and underwriting fees. Closing costs typically run between two and five percent of your purchase price.
At Amerifirst, we can help you look at ways to decrease your closing costs, including wrapping your closing costs into the total cost of the mortgage. You can also negotiate with the seller to pay a portion of your costs.
There's a lot to think about when you're buying your first home. We've put together a step-by-step guide to help you get ready. Download it here: