One of the most common questions we hear at NeighborWorks Umpqua from first-time home buyers is whether or not they have enough saved to buy a home. How much is enough? Sure, if you can put 20% down on the home of your dreams and cover all your closing cost, that’s great! But many people accidentally keep themselves from purchasing now because of misconceptions about the home buying process. You could buy a home with less than 20% down if you meet all the other qualifications that make you mortgage ready. Things like stable employment, a solid credit history, etc. You may be wondering if purchasing a home with little to no money down is a good financial move, we can say there are a few things to consider before leaning one way or the other.
Do you qualify for special financing?
There are several loan products that are available for pretty much for any financial scenario. For example, if you are low- to moderate-income household moving to or interested in living a rural area, you may qualify for a USDA loan, a low to no money down payment loan meant to help people in rural areas achieve homeownership. If you or your spouse are an active duty or honorably discharged service member, reserve, National Guard member with at least 6 years of service, your household may qualify for a VA loan. VA loans provide 100% financing.
FHA loans can be another great option since these loans have a 3.5% minimum down payment and are more flexible on credit scores than Conventional loans. Conventional loans (loans owned by Fannie Mae or Freddie Mac) only require a 3% down payment.
Can you be strategic?
Let’s just say a potential homeowner inherited, is gifted, or simply saved a significant sum of money. They are going to definitely want to see if homeownership is a good fit but there is a great opportunity to make some smart money moves such as paying off high-interest credit cards, medical bills, or just start an emergency fund (fund 3-6 month of living expenses). Depending on your loan product, you may find that the difference between a 20% and a 10% payment are really not as large as you might have expected, but the potential monthly savings you may see by paying off high-interest bills could be significant!
So, how can you choose?
There is no right or wrong way to decide. When starting out we recommend 3 things:
1) Talk to your family: Find out what your shared financial goals are for the future and present.
2) Do your research: Consider setting up a Homeownership Development appointment with a HUD-approved housing counseling agency like NeighborWorks Umpqua. Another starting point could be checking out MGIC’s nifty “Buy vs. Wait “mortgage calculator so you can compare how much equity you would build by going with a smaller down payment vs. renting while you save.
3) Find a lender you trust: Here at NeighborWorks Umpqua, we believe in helping our customers explore all their options before deciding on the right amount of a down payment for their situation and their goals. We are truly dedicated to being with our clients through the entire process.
Olympia Church is NeighborWorks Umpqua‘s Director of Lending and has been working to support responsible homeownership for 10 years.