How To Avoid Paying a 20% Down Payment

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One of the biggest barriers to home ownership that many people face is coming up with enough cash for a down payment.

You may be able to get a mortgage because you have stable income and a good credit score, but coming up with a huge chunk of change to put down on a $200,000 house can be daunting for many people.

In this example, at the recommended down payment amount of 20%, you would have to fork over $40,000. Plus closing costs.

But you’re not alone if you don’t happen to have that type of cash saved up. Well, there are other ways to go about buying a house that don’t require a 20% down payment. Here are a few of them:

VA Loans

If you’re in the military or your spouse has served, thank you for your service. You should already know that you have many benefits. VA loans don’t require any down payment, nor do they require any mortgage insurance.

There are a few key requirements

  1. You have at least 90 consecutive days of military service during wartime or 181 days of peacetime.
  2. 6 years in the National Guard or reserves.
  3. You were wounded in service

FHA Loans – Federal Housing Administration Loans

FHA loans require a down payment of 3.5%. In that same example, you would only have to put down $7,000.

That said, not everyone is eligible to receive an FHA loan. In order to qualify, you need a credit score of at least 580. There are times when you may qualify with a credit score of as low as 500, but you’ll most likely have to put down a higher percentage – 10%.

black couple with keys to the house

Moreover, since you’re not putting down the typical 20%, you’ll have to pay what is called private mortgage insurance-PMI for short. This is an extra fee (usually somewhere between 0.3 – 1.5% of the loan) that you’ll have to pay on top of your mortgage.

The other thing with FHA loans is that they have stricter limits for the amount that you can borrow. This number depends on your market (Cleveland vs San Francisco for example), but the minimum and maximum amount that you can borrow is usually between 65 and 115% of the markets’ median home price.

USDA Loans

These loans from the government also require 0 down payment and are generally offered to individuals with low or moderate income.

Typically, these loans cover properties in rural regions of the country. You may be surprised to learn that the vast majority of the US is covered under USDA loans. You can check which areas are covered on the government website.

State and local Home Buyer Programs

There are thousands of down payment assistance programs all over the country. They depend on your state but if you search your local states website or even on Google, you’re bound to come across them.

You may have to take some first time home buyer classes and many of the loans may be subject to income limitations but if you search hard enough, you should find something appropriate for you.

Credit Unions

Are you an established member at your credit union? Often times, credit unions reward their members by offering favorable terms to their members, such as 0 down payment or reduced interest rates on mortgages.

Talk to a lender to see about potential pre approval terms. Then you’ll be ready for one of our partner real estate agents to show you your next dream home.