Do You Really Have to Put 20 Percent Down when Buying a Home?

Buying a home these days is becoming more and more difficult with stricter credit guidelines and with banks being more picky about who they are going to loan money to. But it’s also getting more difficult with the uncertain economy and fewer people being able to save up the recommended 20 percent for a down payment on a new home. This begs the question: Is it really necessary to have a 20 percent down payment for your home? Here are some alternatives to consider if you can’t come up with a 20 percent down payment.

1. FHA Loans

With an FHA loan, you can get a mortgage loan for as low as 3.5 percent. These types of mortgages are typically available for people who have a low income and also for first-time home buyers. But since the subprime mortgage crisis in recent years, FHA loans have exploded in popularity. Recently, the loan limits for an FHA loan also increased to a maximum of $730,000 which has made it an even more viable option than it was before.

2. VA Loans

With a VA loan, you typically don’t need to have a 20 percent down payment to get a mortgage. In fact, many VA mortgages require very little or no money down as long as you have either served in the armed forces, are serving now or if you are the spouse of someone who has served. Your credit may determine the amount of your down payment, but these loans are typically more flexible than conventional loans.

3. Conventional Mortgages

If you have a great credit score, there is a good chance that you can get a mortgage loan with less than a 20 percent down payment. For the most part, a credit score of 700 or above is required for flexibility with the down payment, but some mortgage underwriters may take into consideration your more recent credit history if you have been paying your bills on time and paying off debts in the last six to 12 months. If you can prove that you are on your way to being more financially responsible, some mortgage underwriters may give you a chance for a mortgage with less than 20 percent down.

There are many ways to get a mortgage without putting down a 20 percent payment upfront.

When you start shopping for a home, it’s important to explore all of your options. Of course, if you do decide to put less than 20 percent down on your home, you can expect higher costs, such as higher interest rates and higher premiums for mortgage insurance. But in some cases, these extra costs are worth it for some buyers who are excited about buying their first home.

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