![]() But in exchange, you’ll be charged an extra fee for the life of the loan-on top of all the extra interest you’ll pay and decades you’ll spend in debt for not saving up a big down payment. FHA loan (Federal Housing Administration): An FHA loan allows you to purchase a house with a down payment as little as 3.5%.To safeguard yourself, here are some rip-off mortgages to avoid: So, are they really helping people? We don’t think so. But remember, lenders who approve low-down-payment mortgages end up taking more of your money in the long run. “Special” mortgage programs-ones that allow you to put next to nothing down-were designed for people who can’t get approved for a mortgage that meets traditional lending guidelines. ![]() ![]() How Low-Down-Payment Mortgages Actually Rip You Off Whatever you do, stay away from FHA and VA loans (more on these next). But as long as your mortgage payment is no more than 25% of your monthly take-home pay on a 15-year fixed-rate conventional loan-you’ll be okay. Keep in mind, any down payment less than 20% will come with that monthly PMI fee, which will increase your monthly mortgage payments. Remember, if you’re a first-time home buyer, a 5–10% down payment is fine. And you’ll waste a lot of money in interest and fees over the life of your mortgage. But beware! Some mortgage programs allow you to buy a house with a down payment as low as 3.5%-or even no down payment at all! That may sound tempting on the front end, but don’t be fooled.Īnything less than 5–10% is actually a very weak down payment, not to mention a sure-fire way to wind up upside down on a home. We already mentioned how a down payment of 5–10% is doable for first-time home buyers. There are ways to buy a house with a down payment less than 20%. That way, you’ll have enough room in your budget to save for a big down payment faster and have cash to cover unexpected home repairs. 4 That’s why we teach people to pay off 100% of their consumer debt and save a fully funded emergency fund (3–6 months of living expenses) before saving for a house. The reasons today’s buyers say they struggle to save a bigger down payment are all debt-related: student loans (51%), credit card debt (45%) and car loans (38%). If you’re a first-time home buyer, a smaller down payment of 5–10% is okay too-but then you will have to pay that monthly PMI fee.ĭave Ramsey recommends one mortgage company. All you have to do is sell your current home to tap into that equity and- presto!-you have yourself a huge down payment for your next home. That makes a 20% down payment easier to reach. If this isn’t your first time buying a house, you’ve probably built up some serious equity in your current home by paying down your mortgage-and rising home prices have added even more equity. Anything less than 20% is considered riskier for a lender-so to cover their butts, they make the mortgage more expensive for you by adding things like private mortgage insurance (PMI). This minimum is partially based on guidelines set by government-sponsored companies like Fannie Mae and Freddie Mac. How Much Should I Pay for a Down Payment?Īim for a down payment that’s 20% or more of the total home price-that’s $40,000 for a $200,000 house. We’ll walk you through the smartest way to decide how much of a down payment you need.īut first, let’s be clear on what exactly a home down payment is.Ī down payment is a portion of the total home price you pay out of pocket before financing the rest with a mortgage. But if you want your home to be a blessing, not a curse, you need to get this right. What’s a good down payment amount? Well, everyone has a different idea on this. So let’s figure out how much of a down payment you need so you know what to shoot for. 1 But when you set a clear goal, you can see a light at the end of the tunnel. In fact, nearly 3 of every 10 first-time home buyers say the most difficult step in the home-buying process is saving for a down payment. Saving for a house is no walk in the park-unless that park is a mountain.
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