Understanding Down Payments
Many prospective home buyers believe that a 20% down payment is required to purchase a new home. This is a common misconception. There are a variety of lenders willing to work with buyers who do not have much cash available for a down payment.
Loan Options for Low Down Payments
For example, FHA and VA loans are available with down payments as low as zero or 3.5%. In fact, many first-time and even second-time home buyers purchase homes with down payments of less than 12%. Regardless of your individual circumstances, it is important to understand the specific requirements before proceeding with the home-buying process.
Private Mortgage Insurance (PMI) Considerations
While having a 25% down payment is certainly beneficial, it is not necessary to avoid mortgage insurance, which can be a significant expense. If you choose to buy a home with a down payment of less than 20%, it is essential to know when you can discontinue paying for private mortgage insurance (PMI). Once your home equity surpasses 20%, you should have PMI removed from your mortgage payment.
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