Did you know that the average home buyer does not actually put down 20% when purchasing a home? While it may have been the norm for a long time, market research suggests that the average first-time homebuyer today only puts down 7% when purchasing a new home. The median Down Payment for repeat buyers is a little higher at 16%.
If you are looking to purchase a home and don’t quite have a 20% down-payment to put down, what are your options? Keep reading to learn more!
If you are paying less than 20% for a down payment on your home, you will likely be required to pay private mortgage insurance, or what is more commonly called, “PMI.” Most often, PMI is added to your monthly mortgage payment, and the exact rate (usually between 0.5% and 1.0% of the entire loan) or amount is determined by your credit score and down-payment percentage. Remember that PMI is in place to protect the lender, not you!
When the amount of equity you have paid towards your home has reached 20%, you can usually request to cancel the PMI (but always read the fine print!).
We talked about the different kinds of mortgages available a few months ago but we wanted to give you a quick recap of the mortgages that are most popular with down payments of less than 20%. As always, please consult with your mortgage loan representative to fully understand your options.
Another option is to look at local first-time homebuyer programs (if applicable). In Wyoming, the Wyoming Community Development Authority offers several assistance programs and options to help make purchasing a home more widely available.
We understand that not everyone has this option, but if it is available to you, borrowing money to make up a 20% down payment could be helpful. Keep in mind that when accepting gifts or “donations” from others for a down payment, your mortgage lender may request bank statements or information for additional verification. Additionally, if you accept money towards a down payment as a loan, your lender will likely have to include that repayment schedule when calculating your debt-to-income ratio.
Many of 307’s agents have experienced transactions involving these different options, but we will remind you one last time to always check your options with a mortgage loan officer or financial institution.