Low Down Payment Mortgage Options

You don't need 20% down to buy a home. Explore flexible financing for first-time buyers and move-up buyers.

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For many buying in Gilbert, AZ, finding a low down payment mortgage is the key to unlocking homeownership. The decision of how much money to use upfront can be confusing. The route for each buyer or investor really depends on their situation and personal preferences.

Many first-time buyers ask: "How do I qualify for these programs?" Generally, qualification standards for a low down payment mortgage are flexible. While credit score requirements vary, options like FHA and VA loans are designed to be accessible.

The summary below reviews four issues that all home buyers and investors should consider: Down payment options, Costs, Benefits, and Personal Considerations.

FHA Loans: Low Down Payment (3.5%)

Purchase a single-family home or condominium with as little as 3.5% down. This is a popular option for buyers with smaller savings, though it typically requires mortgage insurance. Learn more about FHA Loans at HUD.gov.

VA Loans: 0% Down for Veterans

Military veterans who qualify for a VA loan have the easiest route. VA loans can provide up to 100% financing (0% down) for qualified military personnel, with no monthly mortgage insurance.

Flexible Low Down Payment Financing

There are also non-conforming programs, such as 80/20 setups, which allow borrowers to obtain a second mortgage to cover the 20% down payment. We help clients obtain a low down payment mortgage even with less-than-perfect credit.

Cost of Lower Down Payments

  • Mortgage Insurance (PMI): Required when the loan is more than 80% of the price. The lower the down payment, the higher the premium.
  • Higher Monthly Payments: A lower down payment means a larger loan amount, which translates directly into a higher monthly principal and interest payment.
  • Interest Rates: Sometimes, lower down payment programs may come with slightly higher interest rates depending on the loan type.
Example: On a $100k condo at 6.5%:
• 5% down ($95k loan) = ~$600/mo
• 10% down ($90k loan) = ~$568/mo

Benefits of Lower Down Payments

  • Increased Liquidity: Keep more cash in your bank account for emergencies, renovations, or furnishing your new home.
  • Higher Rate of Return: Your property's appreciation is based on the home's value, not your down payment. Putting less down can actually increase your cash-on-cash return percentage.
  • Opportunity Cost: Smart investors can often make a higher return on their cash by investing it elsewhere rather than tying it up in home equity.
  • Tax Deductions: Since a larger loan means more interest paid, you may potentially get a larger tax deduction at the end of the year. Choosing a low down payment mortgage maximizes this potential leverage.
First-time home buyer considering low down payment mortgage benefits in a dining room

Personal Considerations

How much to put down should be carefully thought out. You must make your own personal calculation of the monthly payment that you can comfortably afford.

Obviously, the lender will qualify you for a certain level based on your gross income. But that qualification level is often different from the budget you feel comfortable with day-to-day.

For example: Your lender may qualify you for a payment of $1,500, but you may feel you can realistically afford only $1,200. In that case, you might need to increase your down payment or look for a less expensive property to match your comfort zone.

Not Sure Which Option is Best?

Consult with Ken Starks to eliminate or minimize mortgage insurance and find the low down payment mortgage that fits your life.

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