If you are a first-time homebuyer looking to invest in real estate, you are likely intimidated by the process. Purchasing a home is a substantial investment that takes a great deal of preparation and understanding – particularly when it comes to supplying a down payment.
“Many types of loans offer low and even no down payment loan options.”
While you have likely heard most lenders look for a 20 percent down payment when potential borrowers apply for a mortgage, that may not be always be feasible. Luckily, this isn’t always necessary.
Behind the 20 percent down payment
Providing 20 percent of the total purchase price of the home up front has a number of benefits associated with it. According to Nerd Wallet, someone who can pay that much has a better chance of loan approval. If you are nervous about qualifying for a home mortgage, it may be worthwhile to save as much as possible for a down payment.
Additional benefits of opting for a 20 percent down payment include:
- More equity.
- Lower monthly payments.
- Lower upfront and ongoing fees.
While saving up and paying a ton of cash right away for a home has its advantages, it isn’t always possible with some financial situations. Fortunately, there are additional options that offer low and even no down payment options. However, qualifying for these can be difficult. For example, a loan through the U.S. Department of Veteran Affairs does not require money down, but you must be a qualifying veteran or service member.
With low down payments, you will generally need to pay for mortgage insurance each month. For more information, it is best to speak with your loan officer.
Knowing what options are available – and the pros and cons – can help you as you settle on a plan for paying for your new home.