Making the down payment to buy a home is one of the most difficult things for most homebuyers. Fortunately, though, there are low down payment options and even zero down payment options for many buyers.
Down Payment to Purchase a Home
A down payment is a portion of the purchase price of the home that you pay at the time of closing on your mortgage. It is separate from closing costs and other fees you’ll also pay when buying a home.
Although there are zero down payment home loans, such as with a VA or USDA mortgage, most people will make a down payment on a home at closing.
In this video, Mary Catchur reviews several low down payment home loan products.
Video Transcript: Low Down Payment Mortgage Options
Average Down Payments to Buy a Home
Most people do not make a 20% down payment on a home. On average, Americans pay an 11% down payment. And homebuyers under 35 years of age put down an average of 8%, according to 2016 stats.
Related: Low Down Payment Mortgages Allowing Buyers to Purchase a Home Years Sooner
Low Down Payment Home Loan Options
There are several zero and low down payment options for homebuyers; however, qualifying for these programs can be complex without the help of a knowledgeable mortgage broker. So, before you start looking for a home, it’s advisable to be pre-approved for a home loan, at which time you will learn about different down payment programs.
Though a higher down payment can result in a lower interest rate, lenders have numerous options for home loans with a low down payment. And in the case of a USDA or VA home loan, there are zero down payment options.
Federal Housing Administration (FHA) home loans are backed by the government. They require a minimum down payment of 3.5%, and buyers must pay mortgage insurance premiums (MIP).
Furthermore, VA and USDA home loans provide homebuyers a zero down payment option. VA home loans are available to qualified veterans and provide down payment benefits. USDA home loans have a zero down payment and are available for people buying homes in specific rural areas.
Related: You Don’t Need a 20% Down Payment for a Home Mortgage
Added Costs of Low Down Payment Mortgages
For many homebuyers, it’s better to get a low down payment mortgage and start building equity in their home, rather than renting while saving for a larger down payment. However, there are added costs to a low down payment mortgage, because the lender is assuming more risk with the loan.
Low down payment home loans typically have a higher interest rate and higher expenses, such as mortgage insurance. As a result, a homebuyer’s mortgage payment is higher with a low down payment mortgage. Consequently, it takes longer to build equity in a home purchased with a low down payment mortgage.
For these reasons, many homebuyers refinance their home once sufficient equity accumulates, in order to lower the interest rate and the financing costs. By refinancing, therefore, their monthly mortgage payment may be lower, and they could have the option of building equity more quickly.
Marimark Mortgage is based in Tampa, Florida and serves the mortgage needs of homebuyers, homeowners, and investors 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.
To get started with a mortgage to buy your next home, please fill out our Quick Mortgage Application, or contact us direct.