Many people who want to buy a house think they have to save a lot of money, about 20%, before they can get a home loan. This belief has stopped many from becoming homeowners. But it's time to clear things up and show that you don't need such a large down payment. In this article, we'll talk about why people believe in the 20% myth, what it's really like to get a home loan, and how you can buy a home with a more reasonable down payment.
The 20% Down Payment Myth: Where Did It Come From?
So, where did this idea of needing 20% come from? People used to think that a big down payment showed you were responsible with money and made things safer for the bank giving you a loan. This idea has stuck around for a long time and made it tough for many folks to buy a house, because they didn't believe it to be possible.
The Truth: You Have Options
The truth is that today, buying a home is more flexible than the 20% myth suggests. Here are some important things to know:
1. Lower Down Payments: Most lenders offer different types of home loans where you don't need to put down 20%. Some common options are:
- FHA Loans: You can get these with as little as 3.5% down.
- Conventional Loans: Some allow as little as 3% down.
- VA Loans: If you're a veteran or in the military, you might not need a down payment at all.
- USDA Loans: In some rural areas, you also might not need a down payment.
2. Private Mortgage Insurance (PMI): If you go for a smaller down payment, you might have to pay for something called Private Mortgage Insurance. It's like an extra cost that helps protect the bank if you can't pay your loan. It makes buying a home easier with a smaller down payment.
3. Local Help: Some places have programs and grants that can help you with your down payment and closing costs. These programs can give you the boost you need to buy a home. When you get pre-qualified with a lender, they can discuss this further.
How to Buy a Home Without 20% Down
So, how do you make your dream of owning a home come true without that big 20% down payment? Here are some steps:
1. Check Your Money: First, look at how much money you have saved, how much you make, and how much you spend. This will help you see how much you can put toward your down payment. You'lll need some money in savings to show the lender that you can buy a home. If you currently own a home and would like to sell, you can use the proceeds from the sale to fund your new home loan.
2. Learn About Loans: Find out about the different types of home loans and talk to lenders to see which one works best for you. We prefer to work with local lenders, as we can meet them in person and discuss details.
3. Think About Your Monthly Budget: Remember, if your down payment is lower, your monthly mortgage payments might be higher. Make sure you can pay for your new home without stressing about money. The more you put towards your down payment, the lower your payment will be.
In short, you don't need to worry about the 20% myth. With various loan options and support programs, you can buy a home without a huge down payment. Take some time to understand your choices, plan your finances, and soon you'll be on your way to owning the house of your dreams, with a down payment that works for you. If you're curious about homeownership, give us a call and we can help you explore your options.