Many prospective homeowners in the United States shy away from the opportunity to own property for fear of a 20 percent down payment. Many potential buyers are so stuck on the notion that they will never be capable of saving enough money for a home purchase that they forget about government programs tailored to fit the needs of first-time homeowners who may not have thousands for a down payment. In fact, the practice of putting down 20 percent when purchasing a new home for the first time is all but dead.
The 20 Percent Fantasy
Most, if not all, financial institutions strongly encourage borrowers to pay at least 20 percent of the home purchase bill upfront. Some lenders even allude to the notion of first-time homeowners being denied the residence of their dreams if they fail to come up with exorbitant amounts of cash. Buyers, however, should not be intimidated by such practices.
It is the financial institution’s job to get as much money from the borrower as possible to reduce liability. First-time home buyers who pay 20 percent, will save the bank money. The truth of the matter is that most financial institutions will not deny potential borrowers a loan after all paperwork is submitted and approved just because they do not have 20 percent to contribute to the investment. Such is particularly the case for first-time homeowners since various government-supported mortgage programs are built around the notion of borrowers putting down five percent of a home’s asking price.
How Can Homeowners Take Advantage of Lower Down Payment Options?
The key to successful homeownership is understanding your rights. Whether it’s learning about reverse mortgages or researching government programs that make home-buying easier, you should have a clear understanding of your options as a property owner.
When it comes to down payments, only conventional home loans carry the firm requirement of borrowers paying at least 20 percent of the property’s asking price upfront. In the United States, for instance, Federal Housing Administration (FHA) loans typically come with softer regulations that allow first-time buyers to pay as little as five percent upfront as a down payment. VA loans come with the coveted incentive of zero down payment for qualified buyers. Veterans and current members of the armed forces can take full advantage of such schemes.
It is always best to have a large down payment when you purchase a home as such a significant investment usually comes with lower interest rates and monthly payments. First-time home buyers, however, should not feel as if they are stuck in a renter’s market because they do not have enough cash saved in the bank for upfront costs that come with acquiring a mortgage. In this day and age, the 20 percent down payment rule is little more than a fantasy for first-time home buyers. Why not take advantage of other options?