First-time homebuyers with a 20% down payment, or better yet, a cash offer, have advantages in a competitive real estate market because sellers are more likely to accept offers from buyers in strong financial positions. However, one does not need a 20% down payment to get into a house. Well-qualified buyers might get a conventional loan for 3% down.
Those who qualify for government-assisted programs like FHA, VA, and USDA loans might receive a mortgage loan with a minimal down payment.
In addition to losing an edge over other buyers, if buyers do not put 20% down, they probably will be required to purchase private mortgage insurance (PMI), according to HUD.
When a buyer talks to a lender, like Berkshire Hathaway HomeServices Select Properties’ partner USA Mortgage, they need to ask:
- How much the lender requires for a down payment.
- How the lender will verify if funds are available.
- Whether PMI will be required and how much it will cost.
- The total of the monthly payment including PMI.
- How long they will need to carry PMI.
Once a homebuyer determines the down payment details, they need to discuss other costs of getting a mortgage loan with their lender. This can include origination fees, transaction, settlement, and closing costs. Armed with the information they need, they will set out on their house-hunt with confidence!