Reston Home Insider: Busting Common Down Payment Myths

Tell a well-meaning friend or relative that you’re buying a house and be prepared for a ton of advice. Some of these may be good, but the old idea that it takes 20% down payment to buy a house just isn’t true.

Susan Ciapparelli, Senior Lending Officer at American Security Mortgage, says, “Only 1 in 4 customers put 20% or more down when buying a home.”

Why? There are many loan programs available to help homebuyers achieve the American Dream without completely depleting their savings.

For example, FHA loans only require a 3.5% down payment and lending guidelines are less strict than for conventional loans. So, if your credit score isn’t ideal, you may still qualify for a mortgage. Additionally, FHA loans can be assumable, so when it comes time to sell, a buyer may assume that your interest rate makes your home much more attractive to buy, especially given the historically low interest rates that we see today. Loans issued by the Veterans Administration require a 0% down payment and may also be assumable. (Of course, you must be a US veteran to qualify.) On a conventional loan, you can deposit as little as 3%, so for example, on a sale price of $565,000, you can deposit as little as 16 $950.

Let’s also talk about mortgage loan insurance, also called PMI (private mortgage insurance). Many buyers fear mortgage insurance simply because they don’t understand it. With conventional loans, your lender will require this insurance if you put less than 20% to protect themselves if you stop paying the mortgage. Mortgage insurance is based on your credit score and a few other factors. If you have good credit, your monthly PMI could be very low, freeing up your money to make improvements to your new home. Additionally, PMI can be paid in a lump sum at closing; financed in certain cases or credited, instead of having monthly payments.

My advice? Have a loan officer run through different scenarios using a variety of loan programs to determine the best down payment option for you; each person’s scenario can be drastically different.

Lynn Cooper is a licensed realtor in Virginia with McEnearney Associates in McLean. Whether buying or selling, Lynn is 100% committed to her clients before, during and after the transaction. Contact Lynn at 202-489-7894, [email protected] Where @lynncooperrealestate.

About Matthew R. Dailey

Check Also

House prices are skyrocketing. 4 ways to increase your down payment funds

Image source: Getty Images Here’s how to scrounge up the extra cash you need for …