Mortgage Options with Low Down Payments, Part 1

When navigating the mortgage process, one of the most important areas for many homebuyers will be achieving a low down payment. While interest rates and other mortgage factors are generally good for many buyers currently, fewer have large chunks of saving built up, and will be looking for mortgage options that allow for lower down payments as a result.

At Altius Mortgage and our partners at Mortgage Ogden, we’re here to help with a variety of potential home loan programs, including several meant in some part to help buyers obtain mortgages without putting a burdensome amount of money down up front. This two-part blog series will go over some important areas to consider when it comes to low or even no down payment on your mortgage, plus some of the top loan options available for those with this goal in mind.

Don’t Fixate on 20%

Within many circles, there’s a myth that all homebuyers, no matter the mortgage type, must be putting 20% of the home’s total purchase price up as a down payment. This simply isn’t the case.

Rather, that 20% figure is only a benchmark for conventional loans – and even then, it’s not actually a hard requirement. Conventional applicants who do not have 20% of the purchase price to put down will have to take out private mortgage insurance to cover the lender’s risk, but that doesn’t mean they can’t take out a loan. Meanwhile, there are several other special loan programs meant to lower down payments, or even eliminate them altogether (more on these below).

Private Mortgage Insurance Basics

We noted private mortgage insurance, or PMI, as something you’ll have to pay if you’re a conventional mortgage borrower putting up under 20% on your down payment. Some view PMI as a negative to be avoided at all costs, but this really isn’t the case.

In reality, PMI allows you to obtain a lower down payment without ruining your finances. In addition, PMI is not permanent – once you reach about 20% equity owned in the home (or sometimes even less), PMI will be cancelled and you’ll simply be paying your monthly mortgage amount from that point forward. This allows you to proceed without depleting your full savings for a down payment while still obtaining the home of your dreams.

Our next several sections will go over some of the top mortgage programs that may help you lower your down payment significantly.

FHA Loans

FHA loans, so-named because they’re backed by the Federal Housing Administration, allow for down payments as low as 3.5% with credit scores of at least 580. For those below this number but above 500, the same loan is available for 10% down.

VA Loans

VA loans refer to those supplied by the US Department of Veteran’s Affairs, and are offered to military members, veterans and surviving spouses. VA loans often allow borrowers to pay no down payment whatsoever, plus typically don’t require any mortgage insurance either.

For more on the kinds of loans to consider if you want a lower down payment, or to learn about any of our mortgage programs, speak to the staff at Altius Mortgage today.