Smart alternatives to putting 20 percent down | Bedford Corners NY Homes


These days, there are a number of alternatives to the 20 percent down payment, with some options requiring down payments of 3 to 5 percent, while others offer loans with 0 percent down.

Keep reading to learn more about these alternatives…

Alternative #1 – FHA Loan

If you’re a first-time homebuyer, consider a Federal Housing Administration (FHA) loan. It’s a type of federal assistance loan that allows lower-income Americans to borrow money to purchase a home they could not otherwise afford.

Buyers can get an FHA loan with a down payment as low as 3.5 percent of the purchase price, according to the U.S. Department of Housing and Urban Development.

“The FHA loan is designed to protect buyers from buying more house than they can afford,” says Paula Pant, founder of Afford Anything, a website that helps people reach their financial goals. “It limits buyers to spending no more than 31 percent of their gross monthly income on their total house payment. In other words, it protects buyers against making risky decisions.”

However, Pant says there is one drawback: Buyers will need to pay mortgage insurance as a result of not furnishing a 20 percent down payment.

“The cost of this insurance counts towards the total house payment, which is capped at 31 percent of a buyer’s gross monthly income. So, for example, if they earn $1,000 per month (gross), they can’t pay more than $310 per month towards all mortgage expenses, including the principal, interest, taxes and insurance, including PMI.”

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