I want to buy a house, but I don’t have 20% to put down. What are my options?

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Credible Money Coach gives reader tips on how you can save 20% and avoid the 20% down payment requirement for buying a home. (Credible)

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Dear credible money coach,

I want to buy a house, but I cannot pay a 20% deposit. Can you give me some suggestions? – Bobbie

Hello Bobbie,

Congratulations on working towards your own home! Saving for a down payment is a great first step in preparing to buy a home.

Getting into a real estate transaction with a healthy down payment is to your advantage. A 20% deposit means you can avoid paying for personal mortgage insurance – a type of coverage that protects the lender if you default on your loan.

However, you do not have to pay a 20% deposit. Depending on your credit and the type of mortgage you want, you may qualify with a smaller down payment. But I recommend putting down as much as possible.

Loans without 20% deposit

Certain types of loans allow you to qualify without a 20% deposit.

FHA mortgages are government-backed loans that are a great option for first-time home buyers, people with imperfect credit ratings, or those who don’t have a significant down payment.

Generally you can lie down only 3.5% on an FHA loan if your credit score is at least 580. If your credit score is lower than 580, you will need to pay a 10% deposit.

If you are a veteran, active service member, or married to one, you may be able to qualify for one VA loanwhich does not require a deposit. VA loans also have no minimum credit requirements.

The same applies USDA loan – No down payment and no minimum credit requirements. However, you can only get a USDA loan if the home you are buying is in certain rural areas in the country.

Tips to get 20% (or more)

Every dollar you invest is instant equity in your home and one less dollar to pay mortgage interest on. But saving a 20% deposit can be a challenge in the best economy, let alone if you are still feeling the effects of the pandemic.

Here are five tips to help you save on a home down payment.

  1. Build your emergency fund. If you’re struggling to save a down payment because unexpected expenses are constantly forcing you to use your savings, focus on building your emergency fund first. With a cash reserve, you don’t have to tap into your savings to cope with surprising costs.
  2. Pay off high-interest debts. If any part of your income goes towards high-yield credit card balances, focus on paying them off. Get rid of the high interest debt gives you more cash each month for your down payment savings. It also helps your credit score.
  3. Make sacrifices. Look at your monthly expenses and identify one costly thing to eliminate. Once you’ve cut, you can use the money on your down payment.
  4. Increase Your Income. If it’s been a while since you’ve received a raise, maybe this is a good time to ask for one. Then put the additional income straight into your down payment savings account. If a raise is not an option, consider taking a part-time job or freelance job.
  5. Put your savings on autopilot. Many employers can split part of your paycheck into a savings account. Adjust your direct deposit so that you save on down payments without going through your spending account.

You need Credible® Advice on a question of money? Send an email to our Credible Money Coaches at moneyexpert@credible.com. A money coach could answer your question in an upcoming column.

This article is intended for general information and entertainment purposes. Using this website does not create a professional customer relationship. Any information found on or derived from this website is not a substitute for legal, tax, real estate, financial, risk management or other professional advice and cannot be viewed as such. If you need such advice, please contact a licensed or knowledgeable professional before taking any action.

About the author: Laura Adams is a personal finance and small business expert, award-winning writer, and host of Money girl, a premier weekly audio podcast and blog. She is often quoted in the national media and millions of readers and listeners benefit from her practical financial advice. Laura’s mission is to help consumers live richer lives through her speeches, speaker and advocacy. She has an MBA from the University of Florida and lives in Vero Beach, Florida. Follow her up LauraDAdams.com, Instagram, Facebook, Twitter, and LinkedIn.




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