There are many myths about the real estate market. Today I am discussing the biggest myth surrounding down payments.
The biggest myth I hear is “I need a 20% down payment.” After the last recession, underwriting guidelines tightened across the country, and the perception became that you needed at least a 20% down payment to qualify for financing. While this was true at the time for jumbo financing, it has since changed. There are a wide array of loan programs with different down payment options.
In Texas, jumbo loans are set by the government, and this year, the amount for a jumbo loan is anything over $453,100. A loan larger than this will usually still require a 20% down payment. However, there are plenty of lenders who will loan at 100% loan-to-value for the right borrower. Just remember that the lower the down payment, the higher the interest rate.
Loans lower than $453,100 will be considered a conventional loan, and their down payments can range from as low as 3% to however high you want to make it. These loans will have different requirements for mortgage insurance that you should be aware of.
Your next option is the FHA loan, which has a 3.5% down payment minimum, assuming you have a credit score over 580. If you have a credit score of less than 580, it will be hard to qualify for financing, but at that point, 10% is required.
The final two loan programs you can use are USDA and VA loans. USDA loans are used for rural properties and VA loans are for veterans. Neither requires any down payment.
As you can see, there is definitely a wide range of down payment possibilities. If you have any further questions about the myth of the 20% down payment or how to best use your funds, please don’t hesitate to ask. I’d be glad to help you.