Deciding on how much money to use as a down payment can be confusing. The professionals at Barefoot Mortgage are here to help. The route for each buyer or investor depends on their situation and personal preferences. Have less than perfect income and credit? We have options that fit your needs!

Low Down Payment Options

FHA Loan

You can purchase a single-family home or condominium with as little as 3.5% down payment using an FHA loan, but there is a price for lower down payments on conforming loans: mortgage insurance (often called PMI, private mortgage insurance).

Mortgage insurance is typically required when the loan amount is greater than 80% of the purchase price (practical translation: down payment is less than 20%). Also, the lower the down payment, the higher the premium ratio charged.

USDA Loan

Is your dream home in the far suburbs or surrounded by pasture and farmland? Buyers in rural and suburban markets may be able to use a USDA loan, which requires no money down and no PMI.

VA Loan

Military veterans who qualify for a VA loan can purchase a home with no money down and no PMI. VA loans can provide up to 100% financing for qualified military personnel, veterans, and their spouses.

Conventional Loan

There are also conventional Fannie Mae and Freddie Mac mortgage programs available that allow for as little as 3% down. Scenarios are frequently competitive with those of FHA, so let Barefoot examine all your available options.

If you have less than perfect income or credit, we have programs that may fit your needs!

How much should I use for a down payment?

There are costs and benefits to any option, including those with low down payments. You should carefully consider your options and discuss your plan with a professional.

Talk to your mortgage concierge today to come up with a customized solution that best fits your needs and budget.

Cost of a Lower Down Payment

Low or no down payment programs have two primary costs that result in a higher monthly payment:

• -Higher interest rates
• -Higher mortgage insurance premiums.

Mortgage insurance can usually be removed once sufficient equity is produced. For example, if the property shows at least 20% equity in a few years, the mortgage insurance can be refinanced away or removed.

Benefits of Lower Down Payments

Though the disadvantages of low down payments seem serious, there are also advantages. Take time to weigh the two and assess which is the best for you.

The chief benefits of lower down payment include the following:

1. -Less money out of pocket at the time of purchase.
2. -Higher rate of return. Your property’s appreciation will be the same whether you put 3%, 5%, or 20% down. In fact, your rate of return actually decreases as you make a larger down payment, as discussed below.
3. -When you find the right home right away. We don’t always have all the cash we need ready at all times, but then you find that home…
4. -Opportunity cost. In some cases, the smart investor can make more money from available cash by placing it in other investments.

During the first few years of the mortgage loan, the bulk of your monthly payments go towards paying interest – which is usually tax-deductible. So you can get quite a bit of your monthly payments back at the end of the year in the form of tax deductions.

Personal Consideration

Carefully consider the amount of money that you want to put down. Barefoot Mortgage will qualify you for a certain level based on your income; however, that amount may be different from the level that you feel comfortable paying each month. You must decide what you can afford.

Talk to your concierge at Barefoot Mortgage about the best situation for you.