HSBC has found out that 35 percent of young Americans today already own the home they live in. 80 percent on the millennial non-homeowners are planning to buy a house in the next five years. Even with this positive homeownership rate, many millennials still point out one big hurdle. It is the struggle to save for a down payment.
One of the leading causes of homeownership apprehension is the down payment, according to Genworth Mortgage Insurance. Many borrowers believe that the 20 percent down is mandatory when taking a loan. This misconception has made it hard for homeowners to take a home purchase loan.
The 20 percent is Ideal
The 20 percent, according to lenders, is the ideal down payment. It is high enough to decrease the borrower’s level of risk. It is good enough to take a good interest rate. It is also low enough not to burn a hole in the borrower’s wallet.
Studies have shown that if the borrower shells out a significant amount upfront, there is the less likely chance that they default the loan.
Explore the Low and Zero Down Payment Options
USDA HOME LOAN: 100% FINANCING
The US Department of Agriculture provides no down payment loans for buyers or owners of eligible rural houses. It is known to have lenient credit qualifications, low to zero down, less stringent income requirements and affordable interest rates.
It comes with a funding fee that is payable monthly. This ensures the program’s availability for posterity. Even with the funding fee, it still remains affordable access to funds.
VA HOME LOAN: 100% FINANCING
This loan is guaranteed by the US Department of Veteran Affairs, and financially-backed by private lending companies and banks. This is available to qualified military veterans, those who are actively in military service and qualified National Guard and Reserve members.
The loan has a zero down payment option. However, together with other factors, the amount of down will determine the funding fee the borrower will pay.
FHA HOME LOAN: LOW DOWN
The excellent thing about the FHA home loan is it only requires a 3.5 percent down payment. Along with low closing and upfront costs, it also has lower interest rates than conventional loans.
Because it is a loan backed by the federal government, there is security for the mortgage lender. Because private lenders provide the financing, the credit requirement varies per lender. In general, you will need a score of at least 580 to qualify.
Aside from these federal home loans, there are also conventional loans that provide low or zero down payments. You can ask a lender about these options.
There are many options to choose from to jumpstart in homeownership. Speaking with a lender will help you discover more way to finance your home and find the best one.