Buying a home with less than 20% down

How to Buy a Home with Less Than 20% Down?

Many Massachusetts homebuyers are under the impression they need to put 20% down in order to buy a home.  That’s simply not true. Sure, putting 20% down allows homebuyers to avoid the extra cost of having to purchase private mortgage insurance (PMI) but the majority of homebuyers simply can’t afford to put 20% down.

Fortunately, there are many lending programs that offer homebuyers low down payment options. The two most common are government mortgage loans (FHA, USDA, and VA) and conventional mortgage loans (those that are sold to Fannie Mae and Freddie Mac).

GOVERNMENT LENDING PROGRAM OPTIONS:

The Federal Housing Administration (FHA)  allows qualifying homebuyers to buy a home (single or multi-family primary residence) for as little as 3.5% down. And to boot, the maximum loan limits can be quite generous, it just depends on the county where the home is located.   For example, in the Massachusetts counties of Suffolk, Middlesex, Essex, Norfolk and Plymouth, homebuyers can borrow up to $770,500 (for a single-family home), $986,400 (2-family), $1,192,300 (3-family) and $1,481,750 (4-family).  

Veterans Administration (VA) loans allow veterans to buy a home (single-family, condo, or multi-family) with no down-payment.  VA financing does not include a monthly PMI charge, but rather a one-time, single premium payment that is financed through the loan amount borrowed.  VA loans also offer generous loan limits and competitive interest rates, even for those homebuyers with less than perfect credit scores. 

United States Department of Agriculture (USDA) loans were designed to help low to moderate income earning families to buy a home (condo, single or multi-family) with zero percent down.  USDA offers homebuyers a reduced monthly PMI payment and a competitive interest rate (even to borrowers with a less than perfect credit score). It does, however, require the property to be in a town with less than 35,000 people. Income and town eligibility can be determined via USDA’s website.  

CONVENTIONAL LENDING PROGRAM OPTIONS:

Conventional lending programs for primary residences allow you to borrow up to $770,500 with as little as 5% down in the previously mentioned counties (see FHA section). This translates into a home purchase price of approximately $811,000. You can also purchase a two-family home, with just 15% down, on a loan amount up to $986,400.

Mass Housing is one of the most respected state housing agencies in the US.  Mass Housing allows homebuyers to buy a home (condo or single-family) for as little as 3% down or a multi-family home for as little as 5% down. More recently, Mass Housing rolled out a grant program, which allows qualifying borrowers to receive up to $50,000 in down-payment and closing costs assistance. Note, Mass Housing, unlike other lending programs, has borrower income limits on all of their lending programs.

Jumbo loan financing allows homebuyers to put as little as 10% down and borrow up to $1 million for a primary residence (single-family or condo) in the previously mentioned counties. And contrary to popular belief, with the right credit and debt to income ratio, PMI is incredibly reasonable.  

All lending programs discussed assume the qualifying borrower has met the required program guidelines for employment, credit history, assets, and the debt-to-income ratio.

Rob Veneziano is a Senior Loan Officer at Fairway Independent Mortgage and a Team Coyle Contributor. Other Credentials: MA Mortgage Broker and Lender License #MC2289. MA Loan Originator License #38902. Rhode Island and Maine Licensed Broker & Lender

Disclaimer: The views and opinions expressed in this commentary reflect Team Coyle’s beliefs and observations as of the date of publication. Team Coyle undertakes no responsibility to advise you of any changes in the views expressed herein. No representations are made as to the accuracy of such observations and assumptions and there can be no assurances that actual events will not differ materially from those assumed. The forward-looking statements in this paper are based on Team Coyle’s current expectations, estimates, forecasts and projections, and are not guarantees of future performance. Actual results may differ materially from those expressed in these forward-looking statements, and you should not place undue reliance on any such statements. These materials are provided for informational purposes only, and under no circumstances may any information contained herein be construed as investment advice. See also terms of use.

About TEAM COYLE

Team Coyle,  a professional group of real estate agents at Compass, has more than ten years of experience helping individuals and families buy and sell real estate in the Greater Boston Region of Massachusetts (primarily MetroWest).

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