Do I need 20% to buy a home? The short answer.
Posted February 12, 2024 in Real Estate Trends
In the past few months, I have seen a lot of social media posts and discussions about down payments and loans and what someone needs to buy a home. In 19 years of real estate I can tell you that not many people have a 20% down payment, at least not for their first home. When they sell their first home for their next ‘move up’ home, they usually do, but still not always even then. Sometimes they have 20% (or more), but still go with a FHA loan. Everyone’s home adventure follows a different path. There are a lot of options for buyers, and many people buy a home with less money than it takes to get into a new rental. Will it be your ‘dream home’? Well, most likely not, but it is a start. It is better to start somewhere and start working towards your dream home than to be stuck in the rental cycle.
Having a down payment is terrific. You do not need 20% down! Having any money to put down really is an accomplishment, but if you DON’T have any, don’t feel like you let yourself down. A lot of people don’t, and they buy homes ALL the time using the down payment assistance loans and programs, or one of the other 100% loan options.
VA loan, if you have the option to use it, is a fantastic 100% loan and affordable option for buyers. SDA/RD loan is also a 100% loan option, but it is location-specific and has limits on what type of home you can buy. Also, there needs to be funding available for that program. It does run out of money sometimes. Conventional loans are great with pros and cons. You can go as low as 3%-5% on the down payment, and there are mortgage insurance options, but the interest rate is credit-driven and mortgage insurance isn’t automatic.
Buying a home is a HUGE thing, and there is a lot of misinformation out there. I don’t care what the radio tells you, you can not buy a home with zero money out of pocket. You will need earnest money. It can be as little as $1,000, but the more expensive the home you are buying, the more you have the better. You will need money for a home inspection. This is about $600 and it is a nonrefundable fee as you are hiring someone to check out your home. The other fee you need is the Appraisal fee. This is another $600-$800. It is another non-refundable fee.
So, if you have $3,000, you have enough money to buy a home.
Every loan program is different and has different credit requirements. Not every lender can offer the same programs or loans, and not every home will be financed with certain loan programs. There were a LOT of changes in the real estate & lending world this year and some new paperwork that didn’t use to be required, but as of 1/1/24, is required now. Real estate and lending is all about paperwork, so before you sign anything, you better know the pros and cons of what you are signing. TAKE A HOME BUYER EDUCATION CLASS! They are free and non promotional. You can take it online through Zoom, or at the Marshall Community Center. The website is www.LearningToBuyAHome.com.