Saving for a downpayment is often the most daunting part of the homebuying process. Having enough cash to put 20% down may seem out of reach, but don’t let that high number discourage you from becoming a homeowner.
Despite what many people say, you don’t have to put 20% down to get the keys to a house. While 20% down payments used to be the norm, most homeowners put down much less.

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In fact, according to the National Association of Realtors, in 2016 the average down payment on a purchase mortgage was just 11%. Here are a few ways to purchase a home without saving for a hefty 20% down payment.

Mortgage Programs

Programs such as Home Possible and HomeReady recognize how difficult it can be to put 20 percent down. These mortgage programs help low and moderate income earners purchase a home for as little as 3 percent down. These mortgages are available to first-time and repeat home buyers alike.

Home Possible has two options: Home Possible, which requires a 5% down payment, and Home Possible Advantage, which requires only 3%. Both mortgages allow flexible sources for the required down payment, meaning you can receive the funds from many different sources, including family, employer-assistance programs, and secondary financing, and with these mortgages you can cancel the mortgage insurance after the loan balance drops below 80% of the home’s appraised value. Home Possible is even available for people without credit scores. These mortgages are made for low or moderate income earners or people who live in high-cost or underserved communities.

HomeReady can give you a mortgage for only 3% down. This mortgage program looks for candidates that have a credit score of at least 620, make low to moderate income and have supplemental boarder or rental income. HomeReady also allows participants to cancel mortgage insurance after home equity reaches 20% and welcomes down payment funding from a variety of sources.

Down payment assistance programs

Down payment assistance programs are separate from mortgage programs. These programs are used in conjunction with home loans and help you cover the cost of the down payment.

The Chenoa Fund Program provides you with a 3.5 percent down payment. There are no income or geographic restrictions, but participants do need a credit score of at least 620. If your income is 115% or less of the median income in your area, this down payment loan may be forgivable. If your income is more than 115% of the median income in your area, you will pay off the down payment assistance through a monthly payment.

MHDC Loans, given through the State of Missouri First Place Loan program, offer down payment assistance grants. MHDC Loans offer up to 4.5% of your down payment, which is provided as a five-year 0.00% forgivable grant.

Private mortgage insurance

If you aren’t interested in mortgage or down payment assistance programs, you can opt for private mortgage insurance (PMI). PMI is typically required if you choose a conventional loan and put down less than 20%. Your lender arranges PMI, which is then provided by private insurance companies.

PMI allows you to put far less money down on your home, but it does mean higher monthly payments. If you purchase a $350,000 home with 3% down, your payments will be $453.73 higher each month than if you purchased the same house with 20% down. PMI is a great option, but it is important to be aware of the monthly payment differences.

There are many ways to get the keys to your perfect house without saving for a 20% down payment. I’d love to help you decide what strategy would work best for you. Contact me today, and we can work together through this exciting process.

Michael Vanella

About Michael Vanella

Loan Officer at USA Mortgage Home Loans