Maybe I’ve heard the conventional wisdom about a higher down payment. I should aim for 20% of the house’s buying price. But for a bundle of people in a bundle of markets, that’s a bundle of money. I can buy a home with as minimal as 3.5% down with an FHA loan. So sticker shock, I must be wondering whether putting a full 20% down payment is really all that essential.

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Here’s Why a 20% Home Down Payment Is So Vital

It’s actually not impossible to get a mortgage with a lower down payment. But 20% down payment really is the gold standard for a reason. Specifically, we can think of four reasons:

Zero PMI premiums. If I at least pay a 20% down payment of my buying price, I won’t have to pay private mortgage insurance or PMI. Lenders routinely need this of housebuyers who borrow more than 80% of the house’s value. This kind of insurance never results in any compensation. Its goal is to save the lender if he defaults (fail to pay back the loan on time). PMI generally costs from .5% to 1% of the loan amount, which can add several dollars annually to the home costs until I’m able to get my equity to the 20% down payment level, at which time PMI is no longer needed.

Small monthly mortgage payments. If I borrow less money, I will obviously have less to pay back. This leaves me off course with more cash for other things or potentially enables me to take out a shorter-term mortgage with a lesser interest rate.

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Greater loan options and terms. The greater my down payment is, the more flexibility I’ll have in terms of loan amounts and loan programs. Most loans over the conforming limit (jumbo loans) will need at least a 20% down payment. Whereas most ARM (adjustable-rate mortgage) programs don’t begin to offer lower rates than fixed until I get to at least a 20% down payment.

Greater purchasing power. A greater down payment means the person can afford to purchase a more expensive home. For example, if I’m budgeting for a $1,000 monthly mortgage payment and can receive an interest rate of 3% on a 30-year mortgage, with a 5% down payment I could afford to purchase a $171,000 home, which would include roughly $685 a month for principal and interest, about $90 in PMI and the remainder for taxes and other expenses. But with a 20% down payment, a $213,000 house would fit into my budget for that same $1,000 monthly payment, since I won’t have to pay PMI.

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Can I find more options low-down-payment loan options?

If you find yourself questioning what down payment to make, reach out to a pro mortgage loan officer. They can suggest to you all your loan options, as well as the prices they’ll come with.

These new mortgage programs exist to serve very special, and innovative circumstances. Most of the home purchases do not likely fall into one of these 3 categories. But for the people who need easy and new mortgage programs in tough situations, these new mortgage programs can be an added benefit.

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Niche Mortgage Programs That I’m Unaware Of

Most people know about the basic type of home loans or mortgage loans. This is where an individual or married couple pays a little bit of upfront money, sign a few papers, and shift into the home as their new residence. However, there are few other ways to purchase a home that is not as common nor as well known. Listed below are some of the new mortgage programs that I did not know existed.

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Family Opportunity Loan

The Family Opportunity Loan enables me to purchase a home as an owner-occupied residence, even though I don’t plan to reside in it. That means, as a child of elderly parents, I can supply better housing for them and obtain the same rates, fees, and lending flexibility as if I were purchasing my own home to reside in.

VA Loan Entitlement

VA loan entitlement is an advantage provided to militants and their families to help them purchase a home. The VA loan entitlement is a guaranteed amount that the VA will cover if I default on the loan. This guaranteed backing provides a lender with a level of insurance that is not a part of other types of home loans. As such, I’m able to qualify for much better terms by using a VA loan, such as no down payment, lower interest, and zero private mortgage insurance.

There are a few common misconceptions about what a VA entitlement is. Few people assume that it is how much I can borrow in total or how much the VA pays out to the borrower to then use towards their VA loan. However, it is neither. The VA loan entitlement is the amount of money the Department of Veteran Affairs will guarantee on a VA home loan, without a down payment. 

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Bank Statement Loan

A bank statement loan is a mortgage for which the underwriter uses the borrower’s bank statements to verify and assess income. The bank statements given with the loan application must be consecutive and cover the 12 to 24 months instantly prior to the application.

Now,For which new mortgage programs you will apply for?

These are the top 3  new mortgage programs that I may not have heard about in the recent past. They are distinct in the fact that each mortgage program may apply to a very different situation. But they also present an option for people to purchase a home that is not a traditional type of transaction.