Do I really need a 20% down payment to buy a home?

What is a Down Payment?

A down payment on a home is simply a percentage of the home’s total cost that a buyer has to pay up front at closing. Saving enough money for a down payment on a home can be challenging. This is one of the largest issues many homebuyers face when applying for a mortgage loan.

How much is required as a Down Payment?

Minimum down payments are typically based on three sets of criteria: the type of mortgage, the lender, and your financial situation and history. Depending on the results of these criteria, your down payment amount will vary.

While you don’t necessarily need to put 20% down to purchase a home (some of the programs that Prevail Bank can offer have little to no down payment requirements available), 20% down is what you’ll need to avoid paying for Private Mortgage Insurance (PMI). PMI is an insurance that allows borrowers to purchase a home with less than 20% down payment. Private Mortgage Insurance is standard with the majority of Financial Institutions.

What are my options if I cannot pay 20% up front?

If you cannot afford to pay a 20% down payment on a house, you still have options. As mentioned earlier, Prevail Bank has numerous loan options: FHA, VA, USDA, conventional fixed, variable ARMs…. They each have their own unique criteria, pros and cons. It’s important to know too, that not all lenders have access to all the loan solutions that Prevail does.

Prevail Bank also has options for down payment assistant programs, such as the Downpayment Plus Program. Qualified borrowers can apply for a down payment assistance grant (up to $10,000!) through the Federal Home Loan Bank of Chicago. For more information on the Downpayment Plus Program, and other options, reach out to one of our lenders.

Benefits of having 20% down

When you pay a higher percentage on your down payment, you have more equity built up early on, meaning you’re that much closer to paying off your home. Paying more up front can also reduce your monthly payment, which means you can put those savings towards something fun! Lastly, you avoid add-ons such as Private Mortgage Insurance premiums and fees.

It’s important to do your research before applying for a loan; check rates, meet with lenders, save money!