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Down Payment Options

A significant part of purchasing a home is saving up for your down payment. It’s not easy, many home buyers need to save for many years to build up their savings for a down payment. How much do you need to save? That depends on the cost of the home you intend to purchase and what your personal financial goals are.

Conventional Loans

For a conventional loan, it’s traditional to provide a down payment of 20%. Paying this amount prevents you from having to purchase Private Mortgage Insurance (PMI), which is a fee that’s added to your monthly payments to protect your lender in the event you’re unable to pay your mortgage. But what if you don’t have 20% saved up? Some options that are available include:

  • 97% Loan-to-Value (LTV) - A conventional mortgage where the loan amount is 97% of the home’s value. Mortgage insurance will be required to receive this loan.
  • Lender-Paid Mortgage Insurance (LPMI) - If you can’t make a 20% down payment, your lender may be able to pay your mortgage insurance for you, however to cover this expense your interest rate will be higher.

Government Programs

The U.S. Government offers a variety of programs that open up homeownership to more people. They are offered through agencies such as the Federal Housing Administration (FHA). Each agency has loan programs specific to it with different requirements for down payment amounts.

  • FHA Home Loan - A great option for first-time buyers or those with financial issues or damaged credit. The required down payment is 3.5%, and a parent or relative can co-sign the loan. Mortgage insurance is required.
  • FHA 203(k) Rehabilitation Loan - If you’re looking to buy a home that needs renovation, this type of loan can finance your purchase and many qualifying repairs. Two versions are available depending on the type of repairs required and their costs. Mortgage insurance is required.
  • USDA Rural Home Loan - If the home you intend to purchase is in a designated rural area, you may qualify for this type of loan. It provides up to 100% financing, meaning no down payment is required.
  • VA Home Loan - As a benefit to veterans, the VA works with lenders to provide veterans with assistance in home buying. Competitive interest rates are available and you only need to make a down payment if choose to do so.