For many first-time homebuyers, saving a down-payment may seem like the biggest hurdle toward homeownership, but here are a few facts about your down-payment that may help you understand it more!
You can buy a home with a down-payment of less than 20%
It’s true that putting down a 20% down-payment has its advantages, but if you have good credit and a steady income, putting down less could still be a great option! A smaller down-payment could allow you to buy a home sooner and have some cash available for other costs such as home improvements.
A smaller down-payment may mean paying Private Mortgage Insurance
In exchange for accepting a lower down-payment, your lender will include an additional fee to your monthly payments that will serve as protection in case you were to ever stop making your mortgage payments. This is known as Private Mortgage Insurance, or PMI, and typically costs between 0.5-1% of your total home loan amount. For example, if your loan amount is $300,000, you may pay an additional $1,500 – $3,000 a year for PMI.
This additional charge may seem like a bummer, but the good news is you won’t have to pay it forever! Once your mortgage principal balance becomes less than 80%, you can request your servicer to drop your PMI.
Don’t wipe out your savings account to pay for your down-payment
Putting down a larger down-payment may be tempting, but remember, your down-payment is not the only thing lenders look for! You will need to have plenty of funds available for your closing costs and moving expenses, plus enough to cover at least 2-3 months of your mortgage.
Ask your lender about any down-payment assistance programs in your area
If you are struggling to save for a down-payment, there may be a down-payment assistance program that can help. Especially when it comes to first-time homebuyers! There are numerous loan programs available to help you get into a home with a lower down-payment. Ask your lender about any program you may qualify for in your area!
