The question of "do I need 20% down?" is one of the most common questions I come across in the mortgage industry. Let's start with the quick and easy answer, NO, you do not need 20% down to get in to a mortgage. This is a bit of a loaded answer so let me explain. The amount of money you actually need to put down is going to depend a lot on what type of loan you are doing, what property type you have, what your DTI is, and what your credit score is. Let's dig into the offered loan programs and find out how much you actually need!
Let's start with the fan favorite conventional loans. Conventional loans actually give you the borrower the ability to get in to a primary home with as little as 3% down. To do 3% down on a conventional loan you will need to be either A) A first time home buyer or B) Qualify for the HomeReady or HomePossible loan programs. (High level review of this program - you need to qualify based off of income) for more information on HomeReady or HomePossible check out our other blog post.
Now if you do not meet the above criteria for 3% down you can still get in a conventional loan for 5% down. The great thing about the conventional loan offering is you can in most instances get your entire down payment in the form of a gift from a relative! This is a great option if you have relatives that are willing to help you get in to your home. If not always make sure you have 2 months of bank statements to source your down payment. Always remember on any conventional loan that you put less than 20% down you will need some form of Private Mortgage Insurance (PMI) - to learn more about PMI check out our other blog posts.
The next loan type on the menu is FHA. An FHA loan will give you the ability to get in to a home with as little as 3.5% down with almost no additional caveats outside of the normal qualifying requirements. You don't have to worry about being a first time home buyer or making too much money. Just keep in mind if you are going FHA it has to be your primary residence. Another great benefit of the FHA program just like conventional is you can use a full gift for your down payment! If you are unable to come up with a gift remember 2 months of bank statements to source your down payment.
FHA will also require insurance on the loan, the biggest difference between conventional is no matter how much you put down on an FHA loan you will need insurance. In fact FHA requires two different mortgage insurances - An upfront mortgage insurance (that can be financed in to the loan) and a monthly mortgage insurance (that will be paid for the life of the loan.) Check out our other posts to learn more about FHA mortgage insurance.
Next up on the down payment train, VA. VA gives our veterans an awesome incentive where if you are a veteran you can get in a home for 0% down! That's right folks no down payment. If you are working with the right lender you maybe able to get in to your home without a single cent from your pocket. This is assuming you the veteran has full entitlement which we can find on the veterans certificate of eligibility (COE) If everything you just read made no sense then you are probably not a veteran and this loan is not for you any ways :)
VA loans will have a VA funding fee attached to it. This is almost like FHA's upfront mortgage insurance, and it is a way the VA can keep funding these no down payment loans for you the veteran. To get a deeper dive in to the VA loan program check out our other posts.
Last but not least we have the USDA loan. USDA loans are a bit more on the rare side, but offer another 0% down loan program! Now before you get too excited this does not come without some stipulations. To get in to a USDA loan a few things must be considered. Number 1, where do you live? To qualify for a USDA loan you the borrower must live in a rural area that is approved for USDA funding, these areas can sometimes be few and far between. Number 2, how much money do you make? This is usually the biggest road block to getting in to a USDA loan. The USDA loan program takes into consideration not only how much you the individual borrower or borrowers make, but the house hold income for anyone over 18 living in the property. Weird right? Before you get your hopes up on this loan make sure you talk to a local loan officer to see if you qualify.
USDA loans will require you to pay a Guarantee fee, this is similar to FHA, and VA which is a fee upfront financed into the loan to keep the loan program funded.
So there you have it, a very long answer to a very simple question! Always remember how much you can put down will depend on your individual situation, and not to sound like a broken record, but always reach out to an expert to help you find out the best loan for you!