It is just a misconception that all types of home loans require a down payment of at least 20% of the purchase price. While it does help to make a sizable down payment, many potential buyers cannot hit the 20% mark. If this is the same for you, note that you can still buy a home with little to no down payment. Just be sure to know what such loans entail and how they can affect your monthly payment.
Down Payment as Little as 3%
There are still mortgage options that require a large down payment, but there are also those that require as little as 3%. You may also consider a government-backed mortgage, like the FHA loans, which require at least 3.5%. Private mortgage insurance (PMI) for conventional loans or mortgage insurance premium (MIP) for FHA loans is necessary if you pay a down payment of less than 20%.
Protecting the Lender
Mortgage loan companies in Utah such as the Altius Mortgage Group note that insurance is required to protect the lender in case you default on the loan. This can increase your monthly payment, so be sure to ask your lender about this. You can have the PMI removed when you at least have 20% of the home’s equity. You may also ask the lender to remove this payment when your mortgage balance is down to 80% of the home’s value.
Loans with No Down Payments
There are also mortgages that don’t require an upfront payment, like VA loans. As the Department of Veteran Affairs guarantees there, they also don’t require mortgage insurance. Veterans, active duty military, and surviving spouse (in some instances) can apply for this loan. You can check out this website for the detailed eligibility requirements of VA loans
USDA loans are another mortgage types that don’t require down payment. They are designed to help buyers, particularly those with low-to-moderate income to finance a property in rural areas. They are mainly for those who can’t afford a traditional home loan.
If you’re thinking of financing a home purchase with a conventional loan, you look for those options that require little down payment. You can also strive to save more first to pay a larger down payment and avoid mortgage insurance. Contact a lender now to learn more about your options.