If you are considering buying your first home, odds are you have worried about making the down payment. This isn’t surprising since many people consider the down payment the biggest barrier to home ownership.
Saving for a down payment can be hard. According to NerdWallet’s study, 44% of respondents said a lack of a down payment was the roadblock keeping them from buying a home.
Before deciding to purchase a home you will need to speak with a lender, and decide if it’s the right time to buy. It’s a huge decision. We certainly aren’t suggesting you buy before you’re ready, but we’d also hate for you to miss out on home ownership because of incorrect information. There are so many misconceptions related to down payments, and we are here to clear them up.
1. You need a 20% down payment to buy a home- This just isn’t true. For decades this was the standard, but it doesn’t exist anymore. If you can put down 20%, that’s great. It could help you achieve a lower interest rate or dodge private mortgage insurance fees. The reality though is that roughly 60% of homebuyers purchased their homes using a 6% or less down payment according to the National Association of Realtors.
A Federal Housing Administration (FHA) loan only requires 3.5% down. If you or your spouse served in the military, you may qualify for a VA loan and no down payment. United States Department of Agriculture (USDA) loans also allow for 0% down. These are just a few examples of low down payment options, your lender will be able to tell you about any additional programs they offer.
2. Low down payment options are only available to first time home buyers- We hear this a lot, but luckily it isn’t true. Low down payment and down payment assistance programs are available to many qualified home buyers whether they are buying their first, second, or tenth home. Speak with local lenders and review their programs before you rule yourself out.
3. You can’t use gifts for your down payment- Many lenders will allow you to use gifts for your down payment. It may not work for every loan type, but many allow you to use a gift from family or a grant to pay for some, if not all of your down payment. This is at the discretion of the lender and will most likely require documentation from the gift giver that they are not expecting repayment, but could very likely be an option for making your down payment.
4. It’s difficult to qualify for down payment assistance- Down payment assistance programs for home buyers exist for a variety of incomes and credit scores. Talk to your lender or to us about down payment assistance programs in the Tuscaloosa are that may work for you.
5. You have to put 20% down on non-primary residences- As the leading condo real estate agents in Tuscaloosa, we often work with clients buying a condo as either a game day home or for their University of Alabama student. Just because they aren’t purchasing a primary residence, doesn’t necessarily mean they have to put 20% down. We often work with a local lender who allows for 11% down payment loans for qualified buyers. This could be an option for you if you are looking to purchase a second home.
Bottom line, if owning a home is one of your immediate or long term goals, it can’t hurt to go ahead and speak with a mortgage lender. You may be surprised what down payment options exist for you. If it turns out your aren’t yet ready for home ownership, your lender can at least tell you what to work towards and expect. If you need help finding a lender, we are always here to help connect you.