Thinking about buying a house? One of the biggest financial hurdles you might face is making a down payment. Typically, it’s recommended to put down at least 20% of the home’s price. This gives you some equity in the property and helps you avoid private mortgage insurance (PMI), which adds to your monthly mortgage payments. But saving up 20% can be tough, depending on your situation and the housing market where you live. For instance, if you’re looking at a $200,000 house, 20% would be $40,000. However, don’t worry if you can’t come up with that much; you can still buy a house with a smaller down payment.
Before buying a home, make sure you:
– Don’t have a lot of consumer debt
– Have an emergency fund in place
– Plan to live there for more than a few years
– Have at least some money saved for a down payment
You don’t always have to stick to the 20% rule. There are more affordable options out there. FHA loans, for example, require a minimum down payment of just 3.5%, while some VA and USDA loans may even have down payments as low as 0%.
Loans with low down payments, such as FHA, VA, and other 0% down mortgage options, can make homeownership more accessible, especially for lower-income families. But keep in mind that they come with drawbacks. Lower down payments often mean higher interest rates, and you might have to pay PMI, which makes your mortgage payments bigger over the long term. Although you can eventually get rid of PMI, it’s an extra cost you could avoid with a larger down payment.
Here are some other things to keep in mind:
1. Keep some savings: Buying a house shouldn’t drain all your savings. You need to have funds for unexpected expenses and make sure your monthly payments are manageable.
2. It might not be your forever home: Your first house probably won’t be your last, so saving a huge 20% for a down payment might not be necessary if you plan to move again in a few years.
3. Diversify your investments: Putting all your spare cash into a down payment might not be the best idea. Consider investing in other areas or saving for future needs like your child’s education.
4. Look for down payment assistance: If a 20% down payment is out of reach but you still want to buy a home, there might be financial help available. Many states offer programs with grants for down payments and closing costs.
In conclusion, while putting down 20% on a house is often recommended, it’s not a rule everyone has to follow. Depending on your financial situation, you can get by with less. Just remember to keep your finances in good shape and be aware of the additional costs that come with smaller down payments. Are you thinking of becoming a homeowner with less than a 20% down payment? Let us know why!