MYTH vs FACT on Home Loans

The MYTH: Down payments have to be 20%…This is untrue

The FACT: Down payments can be as low as 3% with a conventional loan or 3.5% with an FHA loan. Even as a recurring buyer, you can put down as little as 5%!

Because of this, conventional loans are very common and popular for both home buying and refinancing.

Conventional loans are more accessible, requiring a credit score of at least 620, a debt-to-income ratio lower than 43%, and the down payment, as mentioned before, at least at 3%.

However, it is important to mention if you have higher credentials such as a higher credit score and higher down payment when applying for a conventional loan, you will have access to better rates and a lower monthly payment.

There are multiple options for conventional loans, with the downpayment ranging from 3% to 20%.

But why does the myth say you NEED 20%? Well, that’s because if you use a conventional loan lower than 20%, the lender will require a PMI or Private Mortgage Insurance premium. This is coverage for the lender in the case that you default on the loan.

This is typically why people say to put down 20% to avoid PMI; however, you’re not stuck with it forever! Once your home reaches 20% equity, the PMI can be canceled.

Therefore, conventional home loans can be affordable and also have a variety of repayment options from 10, 15, 20, 25, or 30-year terms.

There are also FHA loans that are accessible as well, requiring lower credit scores and down payments; similar to conventional loans. These come in 15 and 30-year terms with fixed rates. However, FHA loans also require mortgage insurance, requiring an upfront and annual premium.

As you can see, you do have options when it comes to home mortgages. And, there are options out there that can be more affordable. Don’t fall into the myths, and do lots of research in order to find the best possible loan for your needs! If you’re interested in starting you home buying process, click here to connect with a Sage & Cedar agent!

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