A common misconception is that a down payment of 20% is a must for typical home loans. However, this is only applicable for those who wish to avoid additional private mortgage insurance charges.
The reality is that depending on the type of mortgage, lenders may ask homebuyers to put forward as low as 3% of the property’s purchase price. Indeed, there are even some mortgages that do not require any down payment whatsoever!
Here’s a brief overview of prevalent mortgage types and their respective minimum down payment stipulations:
Conventional loans: Generally, conventional loans from Freddy Mac and Fannie Mae have a down payment requirement of at least 5%. However, for eligible first-time homebuyers, this can be reduced to 3%.
FHA loans: The minimum required down payment stands at 3.5%.
VA loans: These are designated for qualifying military personnel and certain surviving spouses and do not necessitate any down payment.
Section 502 loans: Also referred to as Rural Home Loans, these mortgages are provided by the US Department of Agriculture. Mirroring VA loans, they do not require a down payment for qualified applicants.