Many of the new buyers I speak with are confused about how much to save for a house. It’s not uncommon for people to assume they’re unprepared before they even speak with a mortgage professional like myself.
Driving this misconception is the idea that you need at least 20 percent down to qualify for a home loan. I am here to tell you this is 100% not true!
The reality is that you have a range of options available to help you buy a home with a manageable down payment, or in some cases, no down payment at all.
What it takes to buy a home
Lenders want to see that you’re serious about buying a home. We look at financial stability, personal savings, and your credit score when reviewing your eligibility for a mortgage.
Additionally, some costs must be factored in before starting the home buying process.
For example, when nailing down how much to save for a house, consider the following expenses:
- Skin in the game. Having an earnest money deposit signals to lenders that you’re serious about receiving a loan.
- Home inspections and appraisals. You’ll need to pay for professionals to determine the suitability and value of the property you’re buying. It’s recommended that you demonstrate your ability to cover these costs.
- Emergency reserves. Depending on the loan program you choose, you may need a few mortgage payments in savings to buffer against unexpected financial difficulties.
As you can see, there’s a lot more to buying a home than simply saving for your down payment. But that’s not the end of the story, so please don’t get discouraged. These costs may seem daunting now, but the right mortgage can drastically reduce the financial barriers many assume are waiting for them on the other side of the closing table.
Here are some affordable options for buying a home with little-to-no money down.
Government-backed mortgages can open doors
There are two major categories of home loans—government-backed mortgages and non-government-backed loans, often known as conventional loans.
Mortgages that the federal government backs are financially guaranteed, which carry some advantages. These offer comparatively lower and even zero down payments.
Here are what the different types of government-guaranteed mortgages require for a down payment:
- The Federal Housing Authority (FHA) home loan – 3.5% down
- United States Department of Agriculture (USDA) home loan – 0% down
- A Veteran’s Administration (VA) home loan – 0% down
Please note that this information is relevant to qualified buyers. Each program offers its requirements, so please speak with a mortgage professional about your next steps.
Also, your particular loan program may require you to carry mortgage insurance. If you choose a loan that requires mortgage insurance, it will add to the size of your monthly payment. Speak with a loan officer to determine which types of home loans will work best for your budget and how much you need to save. It could be less than you think.
Clarifying how much of a down payment you’ll need
As I stated earlier, it’s generally a myth that you need 20 percent down to buy a home.
Government-backed home loans, such as the popular FHA option, require only 3.5% down. USDA and VA home loans respectively requires zero money down.
Things can get a little more individualized when applying for a Conventional Home Loan or one that is not government-backed. In these cases, it’s best to work closely with your loan officer to see how you can become a homeowner in the most affordable way.
Remember, every buyer is different, so the advice you get will depend on your individualized circumstances.
Down payment assistance programs can help
Here in Massachusetts, there are down payment assistance programs that help remove the financial barrier to homeownership.
Most down payment assistance programs are available in the form of grants, low-interest, and even forgivable loans. They are often administered through state or local agencies and are usually geared towards first-time home buyers. These programs can vary significantly by state and municipality, so it’s imperative that you connect with a loan officer like me to discuss a customized approach that will work best for you.
Don’t go it alone
Let’s open a conversation about your homeownership goals. Even if you don’t have any money saved for a down payment yet, I’m able to assess your overall financial situation and give you a road map to homeownership. When you’re ready to take the next step, reach out to me to set up a free home purchase planning meeting. Together, we’ll build a blueprint that will get you home.
