The down payment is the biggest obstacle to buying a home, according to a recent study by Svenja Gudell, Chief Economist at Zillow. As a matter of fact, two-thirds of U.S. renters believe that saving for a down payment is the biggest hurdle to buying a home, according to the first Zillow Housing Aspirations Report.
Saving for a Down Payment
Many Americans incorrectly think they must have a 20% down payment, in addition to closing costs, to buy a home. These costs could equal $45,000 or more, even in more moderately priced metros.
Some prospective homebueyrs are unaware of zero down payment and low down payment options, which we talk about later. As a result, they believe home ownership is unobtainable, which is really not the case.
Though millennials are driving the housing market today, they are often challenged the most with saving for a down payment. Many millennials have difficulty finding a job after college, while also paying student loans, car payments, and credit card debt.
Fortunately, recent changes by Fannie Mae and Freddie Mac have made it easier to qualify for a mortgage. Many borrowers who had difficulty qualifying for a mortgage earlier this year, now qualify.
So, here are some tips to save money for a down payment on a home:
- Learn how much you need to save by contacting your mortgage broker to be pre-approved for a mortgage.
- Budget your finances and keep records.
- Conserve on utilities and transportation.
- Save money by couponing and shopping for sales.
- Limit credit usage.
- It’s Easier for Borrowers with Student Loans to get a Mortgage in 2017
- Qualify for a Mortgage With a Higher Debt-To-Income Ratio in 2017
Zero Down Payment Mortgages
Borrowers eligible for a USDA or VA home loan can qualify for a zero down payment mortgage.
USDA home loans are designed to help people with low- to moderate- incomes in rural communities become homeowners. These loans feature a zero down payment, and are based on the appraised value of the home rather than the purchase price, which allows borrowers to include some closing costs and/or repairs in the loan.
To be eligible for a USDA home loan, borrowers must meet income guidelines, and the home must be located in a qualified area.
Veterans, active-duty personnel, reserve members, National Guard members, and some surviving spouses can qualify for a VA home loan, which also features a zero down payment.
A few of the many additional benefits of a VA home loan include:
- Negotiable and competitive interest rates.
- VA rules limit the amount borrowers can be charged for closing costs.
- Closing costs are comparable with other financing types, and may be lower.
- Closing costs may be paid by the seller.
- The right to prepay the mortgage without penalty.
- VA assistance to veterans in default, due to temporary financial difficulty.
Low Down Payment Mortgages
There are also several low down payment options for borrowers who do not qualify for a USDA or VA home loan, one of which is as low as 1%.
Watch our video about low down payment mortgages. Mary Catchur explains many of the down payment options, along with some of the pros and cons.
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers and homeowners in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.