Mortgage Myth 4: Home Loans Require a 20% Down Payment
How much money should you put down on a house?
Nick Zwiebel and John Major answer this question in the fourth installment of Aksarben Mortgage’s Mortgage Myth-busting series.
The answer just might surprise you!
“You need a 20% down payment to purchase a home.” MYTH!
20% down is a good chunk of change – $30,000 on a $150,000 home, $40,000 on a $200,000 home, and $50,000 on a $250,000 home. Yes, 20% will eliminate the added cost of monthly private mortgage insurance (PMI). But if you rent for a much longer period of time to save 20%, you are not doing yourself any financial favors. Waiting can be costly, especially when you consider that paying rent does not carry the benefit of establishing equity.
The average down payment on a conventional 30-year, fixed-rate mortgage by a first-time buyer is 6%, or $9,000, $12,000, or $15,000 of a $150,000, $200,000, or $250,000 home, respectively.
Other loans require even lower – or no – down payments. FHA loans, those sponsored by the Federal Housing Administration, can be obtained with as little as 3% down, and Veterans Administration (VA) and the United States Department of Agriculture (USDA) loans do not even require a down payment.
So, how do you know what’s the best option for you? If you are currently renting but have homeownership as a goal, consult the mortgage advisors at Aksarben Mortgage to see if the savings of PMI with a 20% down payment is economically advantageous. It could be that a much lower down payment of 3-5%, even with the PMI, is the financially prudent course of action.
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