Deciding on how much money to use as a down payment can be confusing. Lendmire is here to help. The route for each buyer or investor depends on their situation and personal preferences.
Low Down Payment Options
Using an FHA loan, you can purchase a single-family home or condominium with as little as 3.5% down. Mortgage insurance is required when the loan amount is more than 80% of the purchase price (Down payment is less than 20%). Also, the lower the down payment, the higher the mortgage insurance premium.
Do pasture and farmland surround your dream home? Buyers in rural and suburban markets may be able to use a USDA loan, which requires no money down. Household income limitations apply, and buyers should expect to pay PMI for the life of the loan.
Military veterans who qualify for a VA loan can purchase a home without down payment. VA loans can provide up to 100% financing.
How Much Should I Use For a Down Payment?
Any option has pros and cons, including those with low down payments. You should carefully consider your options and discuss your plan with one of our mortgage experts.
Cost Of a Lower Down Payment
Low or no down payment programs have two primary costs that could result in a higher monthly payment:
*Potentially higher interest rates, depending on the loan program.
*Potentially higher mortgage insurance premiums, depending on the loan program.
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 the following:
- *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 3%, 5%, or 20% down. Your rate of return decreases as you make a larger down payment, as discussed below.
- *Opportunity cost. In some cases, the intelligent investor can make more money from available cash by placing it in other investments.
During the first few years of the mortgage loan, most of your monthly payments go towards paying interest – which is usually tax-deductible. Consult a CPA or tax professional for additional information regarding tax benefits.
Carefully consider the amount of money that you want to put down. Your lender will qualify you for a certain amount based on your income; however, that amount may differ from the payment you feel comfortable paying each month.
Consult with a Lendmire mortgage expert to determine what scenario best fits your needs.