Deciding on how much money to use as a down payment can be confusing. Montezuma Mortgage brokers are here to help.
Low Down Payment Options
Conventional 3% Down
You can purchase a single-family home or condominium with as little as 3% down using one of the many low down payment conventional loan options. For borrowers with credit scores above 680 a conventional loan is often times more cost effective than FHA or USDA.
You can purchase a single-family home or condominium with as little as 3.5% down payment using an FHA loan. For borrowers with credit scores below 680 an FHA loan can often times be more cost effective than a conventional mortgage.
Buyers in rural and suburban markets may be able to use a USDA loan, which requires no money down. Household income limits apply.
Military veterans who qualify for a VA loan can purchase a home with no money down. VA loans can provide up to 100% financing for qualified military personnel and veterans.
Down Payment Assistance
There are down payment assistance options that can cover the cost of your down payment and be combined with the options listed above. Income and geographical limits apply.
How much should I use for a down payment?
There are costs and benefits to any option, including those with low down payments. You should carefully consider your options and discuss your plan with a professional.
Speak with us today to come up with a customized solution that best fits your needs and budget.
Cost of a Lower Down Payment
Low or no down payment programs have a few primary costs that result in a higher monthly payment:
- Higher loan amounts resulting from smaller down payments
- Higher interest rates due to risk from higher loan to value ratios
- Higher mortgage insurance premiums due to risk from higher loan to value ratios
Mortgage insurance can be removed once you have enough equity in your property. Once your loan balance reaches 78% of the value used when obtaining your mortgage the mortgage insurance will go away. If values have increased dramatically since you purchased you may be able to refinance and remove mortgage insurance as long as you can reach a 20% equity position.
Benefits of Lower Down Payments
Though the disadvantages of low down payments seem serious, there are also advantages. Take time to weigh the two and assess which is the best for you.
The chief benefits of lower down payment include:
- Less money out of pocket at the time of purchase.
- Higher rate of return. Your property’s appreciation will be the same whether you put 0%, 3%, 5%, or 20% down. In fact, your rate of return actually decreases as you make a larger down payment.
- Opportunity cost. In some cases, the smart investor can make more money from available cash by placing it in other investments.
Carefully consider the amount of money that you want to put down. We will qualify you based on your income and debts; that amount may be different from the level that you feel comfortable paying each month. We’ll help you determine how a mortgage fits into your life and what options to consider along the way.