Nav Thakur | Don’t have 20% to Buy A House? No Problem With These 6 Popular Mortgage Programs
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Don’t have 20% to Buy A House? No Problem With These 6 Popular Mortgage Programs

05 Mar 2014, by Nav Thakur in frontpage, Home Buying

A common misconception among homebuyers 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 down payment.

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.

What is a Down Payment?

Let’s start with the differences between down payment and earnest money deposit.

Earnest money is a deposit made on the home you want to buy. It’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 down payment, on the other hand, is a percentage of the sales price that a lender requires the home buyer to pay when you buy the home. Down payments can come from a bank account, a stock fund, an inheritance, or a retirement portfolio.

Down payments can also come from a family member in the form of a gift.

Down payment requirements will vary based on your loan. Loans for a primary home will have different down payment requirements as compared to secondary or investment home.

The type of loan you choose can affect your minimum down payment, too.  Conventional, FHA, VA, and Jumbo loans each feature varying down payment requirements, and the property type of your home will play a role, too.

Mortgage Options with Less Than 20% Down

Down Payment for Conventional Loans: 5%

Probably the most used is the Conventional Loan which requires a minimum 5 percent down payment on a home. And because the down payment 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 the cost can be offset by taking a higher mortgage interest rate which is known as (LPMI) Lender Paid Mortgage Insurance.

In general, the smaller your down payment and lower your credit score, the higher your private mortgage insurance rate will be.

Down Payment for FHA Mortgage Loans: 3.5%

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 down payment 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 homebuyers.  However now with the recent changes in FHA costs in regards to the upfront mortgage insurance and monthly mortgage insurance along with income qualification requirements, FHA at least for the time being may not be the best option. 

Down Payment for FHA $100 Down Programs: $100

Available to most U.S. buyers, the FHA features a special “$100 down” loan with accompanying low mortgage rates.  You can buy 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 I can help you get a list of homes that qualify.

Down Payment for VA Mortgage Loans: No Down Payment

The VA loan is another government-backed loan. Guaranteed by the Department of Veterans Affairs, it’s a program allowing for no down payment 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 down payment and no mortgage insurance whatsoever.

Down Payment for USDA Loans: No Down Payment

The U.S. Department of Agriculture (USDA) also offers a zero-down payment 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.

Then there is also the 80/15 that has no mortgage insurance

Splitting up your conventional loan into two loans to avoid the monthly mortgage insurance may make sense but ultimately once you are ready to buy the decision will be easy.  Numbers don’t lie and you’ll be able to see in black and white which option is best for you.

How Much Down Payment Should I Make?

When trying to determine how much to put down on a home, in addition to the minimum down payment requirements, it’s important to understand how your down payment will affect your monthly mortgage payment and obligation.

Old school or like my parents would say put 20% down and have no mortgage insurance because mortgage insurance is a rip-off.  Of course the larger the down payment the lower the loan amount resulting in a lower monthly payment.  However using all of your savings to move into a home isn’t always the best route to go financially.  There are plenty of other costs of moving into a new home which people fail to recognize or even admit.  For example you may have landscaping expenses, getting new furniture, blinds, TV’s, appliances the list is endless. 

Do your homework on down payment 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. 

Most importantly though in today’s low supply of houses the number one thing is to make sure you are qualified and get approved for a loan before your serious house hunting goes.  It’s as simple as supply and demand and with inventory of homes that are out there homes are not staying on the market for more than 30 days. 

The people who are prepared and move fast and 100% sure on what price they will get approved for are the ones that tend to swoop in and get the best houses.  As I tell my wife “The Early Bird Gets The Worm”

To find out what programs best fit you call me directly at 314 275-0418 or email me at