It’s the question on every homebuyer’s mind:
DOES MY DOWNPAYMENT ACTUALLY NEED TO BE 20%?
A down payment is the amount the borrower (you) pays to the lender (one of our top-notch MLOs) as a percentage of the purchase price of their home.
Much like mullets, moon boots and meals suspended in gelatin, the notion of a mandatory 20% down payment is outdated. Down payments today are more dependent on how much a buyer is comfortable and willing to pay relative to the loan program they’ve selected.
That’s because loan products with lower down payment requirements have become increasingly available in the spirit of encouraging homeownership. Check out the minimum down payments for the loans we offer:
- FHA Loan: 3% down
- VA Loan: as little as 0% down
- Conventional Loan: 3-5% down
- USDA Loan: as little as 0% down
Low minimums like ours make buying a home more accessible. That flexibility allows buyers an opportunity to get a home sooner and put their savings toward home improvements or other UNexpected expenses.
That all sounds great—so why the heck does this 20% down payment narrative persist?!
Well, there’s an elephant in the room, and it’s called private mortgage insurance (PMI).
PMI is a safeguard for lenders that’s typically required when buyers put down less than 20%. It’s also a weird name for an elephant. The cost of PMI depends on several factors, such as loan type, credit score, debt-to-income ratio and the loan-to-value ratio. The cost is often added to the monthly mortgage payment and will be required until enough home equity is accrued.
If putting 20% down on a home is doable for you, then heck yeah. Your odds of avoiding PMI and reducing the cost of monthly payments are much higher. If putting 20% down is not doable for you, that’s totally cool, too.
Did you know most first-time homebuyers qualify for down payment assistance (DPA)? YUP! We’re proud to partner with the Iowa Finance Authority and other state and local agencies that offer loans and grants to help cover down payments and other closing costs for eligible borrowers. Take some time to explore your options—it can be overwhelming, but our team of experts is here to help.
Reach out to one of our UNbeatable loan officers or give us a call at (515) 334-8100.
This blog is intended for educational purposes only. For details about specific products or services, see credit union for details. For questions about investments, please consult your financial advisor.