You have decided it’s time to buy a home, one of the first questions is usually how much money will you need? Every so often I still hear people think that they need 20% down. That’s not true – it does eliminate mortgage insurance with a conventional loan but most people don’t have that much money in the bank! You can buy with as little as 3% down, sometimes even zero down depending on the program!
Conventional loans require a minimum of 3% down. If you are a first time homebuyer you can do 3% down or if your income meets the income guidelines for Home Ready or Home Possible, you can do 3% down. Otherwise you will need 5% down.
FHA requires at least 3.5% down. Both FHA and conventional loan programs allow gift money. So if you have parents or a family member that is willing to help you with a gift, that can make it easier to buy! Ask your loan officer what you need to do for gift documentation.
VA loans allow you to buy with zero down. You need to have a certificate of eligibility from military service, but it can be a great way to buy!
USDA also allows you to buy with zero down. You need to be buying a home in an area that qualifies for USDA financing and you need to meet the income guidelines.
There are programs that can help with the down payment and closing costs. In Minnesota, MN Housing is a great way to get assistance to purchase your first home. You can get up to $11,000 in assistance that doesn’t have to be paid back until you sell your home or pay off the mortgage as long as you meet the income requirements. If you are not a first time homebuyer, you may still be able to get assistance to help with the down payment, but you will need to pay it back over the first 10 years in monthly payments.
Don’t forget about closing costs too. There are times where you may be able to get the seller to contribute towards your closing costs, but lately that has been more difficult. With the way the housing market has been, most buyers are paying for their own closing costs on top of the down payment. Your closing costs will vary but I usually tell people it’s roughly about 3% of the sales price. That number includes both your closing costs and also your prepaids – prepaids are the interest collected at closing, your first year of homeowner’s insurance and setting up your tax and insurance escrow. Your loan officer can give you an estimate so you know what you will need at closing.
Your lender will go over what you need for closing and verify the money you need. You will need to have two months of bank statements showing you have the money you need. You can use retirement accounts and stocks for down payment. We just need to verify where the money is coming from and it can’t be a credit card or unsecured account.
Just remember you do not need 20% down!!
Leslie Vanderwerf, NMLS ID#335509, Cross Country Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website