Youd be a homeowner right now if it werent for one thing: the down payment. Right? Even for those who have decent credit and make good money, the down payment is often the great homeownership killer.
For many others, who do have enough money set aside to make a substantial down payment, the question is: how much? Conventional wisdomnot to mention most of the banks and a good portion of homebuying and financial expertswill tell you that 20 percent is the standard bearer when it comes to down payments. But is it really necessary to put 20 percent down?
The short answer is: no.
Now for the long answer.
"Raising a 20 percent down payment isnt an easy thing to do. Fortunately, you dont have to. "Its a myth that all homebuyers must have a 20 percent down payment to buy a home," says Nancy Herrera-Siples, a Riverside, Calif., branch manager at Primary Residential Mortgage on U.S. News. "So why do you constantly hear that you need to put 20 percent down? Because if you dont, it usually means youll have to shell out money for either private mortgage insurance or government insurance, which is usually financed by the Federal Housing Administration FHA."
And theres another rub for those who are already struggling to come up with the minimum down payment: that extra couple of hundred dollars per month feels like a penalty. Its not, of course"Mortgage insurance protects the lender in case you cant make your payments and the house is foreclosed on," said U.S. Newsbut that money can make a significant difference for those who are stretching to buy a home.
Still, when your only option to buy is a low down payment, which can mean an FHA loan or one of the new low down payment loans from Freddie Mac and Fannie Mae"At the end of 2014, the two government-backed companies announced plans to slash down payments from 5 to 3," said CNNPMI might literally be a small price to pay. Especially if swelling rents are making homeownership look more and more promising. Remember that PMI does go away eventually when your loan balance is 80 percent or less of the homes value. If youre in an area where homes are rising in value, this could happen sooner than you think.
Still confused about the ins and outs of down payments? Here are a few reasons to go highor low.
When to make a substantial down payment
When to go low
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