Many borrowers think that they needed more than 10% percent in order to buy their desired home. That is simply not true, as there are a number of programs available (not all are Government) with down payments as little as 3%. Some programs are even available with no down payment from the borrower. But remember, by putting less than 20% down you will most likely be required to pay for Mortgage Insurance.
Even a small percentage down can still amount to quite a bit of money as even the 10% down loan on a $400,000 dollar home equals $36,000. Quite a hefty chunk of change to save.
If you are having difficulties in saving for a standard down payment, you should consider the more creative conventional mortgages, FHA loans, VA loans, and even in the USDA loans that are available in rural areas.
In some instances, conventional loans are available with as little as 3% down when involving gov’t sponsored lenders like Fannie Mae and Freddie Mac. But, when using such a small down payment, Mortgage Insurance will most likely be required. Mortgage Insurance can be paid in several ways, either upfront in a lump-sum, as a separate monthly sum, as a combination or increasingly more often these days as an adjustment in the interest rate. The drawback to a lump-sum or interest rate adjustment is that you cannot recapture that money when Mortgage Insurance is no longer needed.
In the case of an FHA loan, Borrowers can now use a down payment as small as 3 ½% although an upfront mortgage insurance premium (UFMIP) equal to almost 2% is added to the loan amount. This is in addition to the amount that is paid monthly, which is .8% to 1% annually, depending on the down payment used.
Veterans administration, aka VA and USDA Loans require no down payment at all. BUT, both require upfront AND monthly Mortgage Insurance.