Question: Are there ways to buy a home without putting 20% down?
Answer: I hope everybody is enjoying the holidays and some time off!
Next month we will take some time to look at market performance in 2021, but this week I’ll address one of the most common questions I get – is it necessary to save 20% for a down payment in order to buy a home? Studies show that the most common reason people give for not buying a home is not having enough savings for a down payment.
About 1/3 of Arlington buyers purchase a home with less than 20% down and for many buyers, especially first-time home buyers, they’re putting as little as 3-5% down.
Programs For Everybody
For those with good credit, there are popular Conventional Loan programs allowing for as little as 3% down and for those with lower credit scores, FHA Loan programs range from 3.5%-10% down. There are also some exceptional 10-15% down programs available to those with great credit and good incomes that do not include mortgage insurance premiums.
Specialty Programs For Military and Doctors
If you are an active-duty or former servicemember you likely know about VA Loans that allow purchases with zero down. Doctors also have access to special loan programs offering great rates with low down payments for large loan amounts.
Many loans with less than 20% down will include mortgage insurance, which I wrote about here. It will increase your monthly payment and is usually a higher the less you put down. However, there are options to get rid of the mortgage insurance fees by buying it out or applying for early removal after a couple of years.
There are also loan options that do not include mortgage insurance at all.
Impact on Negotiations
Clients often ask me if a lower down payment will impact their ability to negotiate, so in 2018 I did an analysis on the topic. The results showed that only cash buyers (100% down) and buyers not putting any money down were materially impacted by their down payment, the negotiation leverage was similar for everybody in between.
However, it would be misleading to suggest that down payment percentage doesn’t have any effect. Most sellers will respond more enthusiastically to higher down payments, and this comes into play in competitive scenarios (multiple offers), which are common in Arlington and the surrounding DC Metro neighborhoods. When sellers are choosing between multiple, similar offers, buyers with higher down payments have an advantage.
Buyers can combat the potential negative impact of a lower down payment in multiple offer scenarios by getting a strong pre-approval letter from a reputable local lender, offering to get pre-approved by a lender of the seller’s choosing, increasing the Earnest Money Deposit, or several other tweaks to the contract that will be looked at favorably by the seller.
Favorite Mortgage Programs
If you’d like any additional information or recommendations on lenders or loan programs, don’t hesitate to reach out to me at Eli@EliResidential.com.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.
Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.