First Time Home Buyer Tips: Mortgage Down Payment

Start saving for a down payment early

It’s very common to put 20% down on a new home, but many lenders now allow much less.  First-time homebuyer programs can allow as little as NO MONEY down. When seeking a 100% financing loan you will have to have better credit, higher than with FHA loans. These loans are very helpful for people with little to no cash reserves and used by many, but are not the best loans for long term homeownership. The more money you can put down, usually, the better the loan terms and offerings you can get, which will set you up for a long term financially beneficial place.

For years, the Federal Housing Administration was the king of the low-down-payment mortgage mountain. Now, Fannie Mae and Freddie Mac, the government-sponsored enterprises that provide capital to the mortgage market, are designing loan products for hopeful home buyers with skinny savings accounts.

With Fannie Mae’s HomeReady and Freddie Mac’s Home Possible, a 3% down payment — or what lenders refer to as 97% loan-to-value or LTV — is available on so-called conventional loans. Conventional loans are the loan products most often issued by lenders and desired by most.

Putting down less than 20% may mean higher costs and payments for mortgage insurance, and even a small down payment can still be hefty. For example, a 5% down payment on a $200,000 home is $10,000.

Play around with this down payment calculator to help you land on a goal amount. Some tips for saving for a down payment include setting aside tax refunds and work bonuses, setting up an automatic savings plan, and using an app to track your progress.

There are lots of mortgage options out there, each with its own combination of pros and cons. If you’re struggling to come up with a down payment, check out these loans:

•     Conventional mortgage - They conform to standards set by the government-sponsored entities Fannie Mae and Freddie Mac and require as little as 3% down.
  
  
  

•     FHA loans - Loans insured by the Federal Housing Administration permit down payments as low as 3.5%.
  
  

•     VA loans  - Loans guaranteed by the Department of Veterans Affairs sometimes require no down payment at all.
  
  
  

Making a higher down payment will mean having a lower monthly mortgage payment. If you want the smallest mortgage payment possible, opt for a 30-year fixed mortgage. But if you can afford larger monthly payments, you can get a lower interest rate with a 20-year or 15-year fixed loan. Use our calculator to determine whether a 15-year or 30-year fixed mortgage is a better fit for you. Or you may prefer an adjustable-rate mortgage, which is riskier but guarantees a low-interest rate for the first few years of your mortgage.

In addition to federal programs, many states offer assistance programs for first-time homebuyers with perks such as down payment assistance, closing cost assistance, tax credits, and discounted interest rates. Your county or municipality may also have first-time homebuyer programs.