Deciding on how much money to use as a down payment can be confusing. Barrett Financial Group, LLC is here to help. The route for each buyer or investor depends on their situation and personal preferences.

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Low Down Payment Options

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FHA Loan

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You can purchase a single-family home or condominium with as little as 3.5% down payment using an FHA loan, but there is a price for lower down payments on conforming loans: mortgage insurance (often called PMI, private mortgage insurance).

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Mortgage insurance is required when the conforming loan amount is MORE than 80% of the purchase price (practical translation: down payment is less than 20%). Also, the lower the down payment, the higher the premium ratio charged.

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USDA Loan

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Is your dream home surrounded by pasture and farmland? Buyers in rural and suburban markets may be able to use a USDA loan, which requires no money down.

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Household income limitations do apply and buyers should expect to pay PMI if their down payment is less than 20%.

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VA Loan

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Military veterans who qualify for a VA loan can purchase a home with no money down. VA loans can provide up to 100% financing for qualified military personnel and veterans.

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There are also non-conforming mortgage loan programs available that allow for 80/20 set-ups, which allow borrowers to obtain a second mortgage to cover the 20% down payment.

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Have less than perfect income and credit? We may have a program that fits your needs!

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How much should I use for a down payment?

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There are costs and benefits to any option, including those with low down payments. You should carefully consider your options and discuss your plan with a professional.

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Talk to one of our loan specialists today to come up with a customized solution that best fits your needs and budget.

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Cost of a Lower Down Payment

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Low or no down payment programs have two primary costs that result in a higher monthly payment:

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• Higher interest rates

• Higher mortgage insurance premiums.

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Mortgage insurance can be removed once sufficient equity is produced. For example, if the property shows at least 20% equity in a few years, the mortgage insurance can be refinanced away.

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Benefits of Lower Down Payments

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Though the disadvantages of low down payments seem serious, there are also advantages. Take time to weigh the two and assess which is the best for you.

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The chief benefits of lower down payment include the following:

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• Less money out of pocket at the time of purchase.

• Higher rate of return. Your property’s appreciation will be the same whether you put 3%, 5%, or 20% down. In fact, your rate of return actually decreases as you make a larger down payment, as discussed below.

• Opportunity cost. In some cases, the smart investor can make more money from available cash by placing it in other investments.

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During the first few years of the mortgage loan, the bulk of your monthly payments go towards paying interest – which is usually tax-deductible. So you get quite a bit of your monthly payments back at the end of the year in the form of tax deductions.

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Personal Consideration

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Carefully consider the amount of money that you want to put down. Your lender will qualify you for a certain level based on your income; however, that amount may be different from the level that you feel comfortable paying each month. You must decide what you can afford.

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Talk to your loan officer at Barrett Financial Group, LLC about the best situation for you.