Deciding on how much money to use as a down payment can be confusing. The Spahr Team is here to help. The route for each buyer or investor depends on their situation and personal preferences.
Low Down Payment Options
Down Payment Assistance
You can purchase a single-family home, condominium, townhome or 2-4 unit property with no money down (most cases require $1,000 out of pocket and vary by state and program).
Some down payment assistance will be in the form of a loan that must be paid back either monthly or when the first mortgage is paid in full. Others can come in the form of a grant. The size of the down payment assistance loan or grant as well as if a monthly payment is required will vary by program and qualifications. These programs are typically income sensitive so you cannot make over the income caps in place for the program.
You can purchase a single-family home, condominium, townhome or 2-4 unit property with as little as 3.5% down payment using an FHA loan.
Is your dream home in a lesser populated area? Buyers in rural and suburban markets may be able to use a USDA loan, which requires no money down.
Household income limitations do apply.
Veterans, active duty service members and surviving spouses of military who qualify for a VA loan can purchase a home with no money down.
Have less than perfect income and credit? We may have a program that fits your needs!
How much should I use for a down payment?
There are costs and benefits to any option, including those with low down payments. You should carefully consider your options and discuss your plan with a professional.
Talk to one of our loan specialists today to come up with a customized solution that best fits your needs and budget.
Cost of a Lower Down Payment
Low or no down payment programs have two primary costs that result in a higher monthly payment:
- Higher interest rates
- Higher mortgage insurance premiums.
Mortgage insurance can be removed once sufficient equity is produced on most programs. For example, if the property shows at least 20% equity in a few years, the mortgage insurance can be refinanced away or you can request to have it removed (some restrictions may apply).
Benefits of Lower Down Payments
Though the disadvantages of low down payments seem serious, there are also advantages. Take time to weigh the two and assess which is the best for you.
The chief benefits of lower down payment include the following:
- Less money out of pocket at the time of purchase.
- Higher rate of return. Your property’s appreciation will be the same whether you put 0%, 3%, 5%, or 20% down. In fact, your rate of return actually decreases as you make a larger down payment, as discussed below.
- Opportunity cost. In some cases, the smart investor can make more money from available cash by placing it in other investments.
During the first few years of the mortgage loan, the bulk of your monthly payments go towards paying interest – which is usually tax-deductible. So you get quite a bit of your monthly payments back at the end of the year in the form of tax deductions.
Carefully consider the amount of money that you want to put down. Your lender will qualify you for a certain level based on your income; however, that amount may be different from the level that you feel comfortable paying each month. You must decide what you can afford.
Talk to your loan officer at The Spahr Team about the best situation for you.