DOWN PAYMENT MYTHS
Written By Gail Fattizzi (Executive Director - Relocation Director, NYS Licensed Real Esta). Created on 01/15/2016.
Many trade publications have declared that there is a misperception among potential home buyers that they need a 20% down payment to purchase a home. I have scoffed at those articles, thinking that with all that's been written in the media about FHA loans with 3.5% down payments and other low-down mortgage products, no one could possibly still think that you need 20% down.
Well, it turns out that I was wrong! The reality hit home recently when I attended a housewarming party. The new homeowners invited some of their “Gen Y” friends. In conversation, one such friend was clearly envious of the new homeowners and commented that he didn't have enough for a down payment....20%! He was totally surprised to hear that he needed much less. So here was a bright college graduate with good income and a solid job that he's held for over 5 years thinking he couldn't buy a home!
The reality is that there are many options out there today for buyers with less than a 20% down payment. Here is a brief overview on just a few loan products that allow for a low down payment:
FHA: This is probably the most widely known low-down payment product. Once upon a time, FHA loans were rare but are now used by 12-15% of home buyers. You don't need to be a first-time buyer and the 3.5% down payment can even be gifted by a relative.
Fannie Mae: Fannie now has a new loan program for first-time buyers (defined as someone who hasn't owned a home in the past 3 years) known as “My Community Mortgage”. These loans can be had with only 3% down and completion of a buyer counseling course. Fannie even allows buyers to purchase a 2-4 family property if they can put 15% down.
SONYMA: In NYS, first-time buyers with 3% down can purchase a condo or single family home. Co-op purchases require 5% down payments (as long as the co-op bylaws allow for this low down payment), of which at least 3% must be the borrower's own funds and up to 2% can be gifted or granted through a down payment assistance program. A 3 - 4 family home requires 10% down, again 3% of which must be the borrower's own funds. Income & purchase price limits are determined by the location of the property.
VA: Eligible veterans and active service members can receive up to 100% financing with no mortgage insurance required for the purchase of a single family or 2-4 family home, or a VA-approved condominium.
Conventional loans: Yes, even conventional conforming loans can be obtained on single family homes with just 5% down.
Do keep in mind that there are many variables and qualifying criteria on these loan products, including but not limited to minimum FICO credit scores, documented income, demonstration of ability to repay, mortgage insurance fees, and more. Consultation with a reputable and knowledgeable lender is required to determine qualification for any loan, and an understanding of the best options for any potential borrower. But the fact is that it's entirely possible to purchase a home with less than 20% down. Please spread the word and tell your friends! We can put you in touch with lenders to help you understand your options, and we're happy to work with all qualified borrowers, regardless of down payment.
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