There is a common misconception among first-time homebuyers that they need a 20% down payment to purchase a home. This is not true, and a home buyer can purchase a home with as little as 3% down (0% for VA loans). There are also down payment assistance programs that can completely cover a buyer’s down payment, but I will discuss those options in a separate post. Below is a brief description of the three primary loan types a home buyer can use to purchase a home:
- Down payment required: as little as 3% if the buyer intends to occupy the property as their primary residence for at least 1 year. If the buyer does not intend the occupy the property, the required down payment is typically 20% but can vary depending on the lender.
- Private mortgage insurance: if you put less than 20% down you must pay private mortgage insurance (PMI) each month. The cost of PMI varies based on the buyer’s credit score and the loan to value ratio. Additionally, once the property’s loan to value ratio reaches 80%, the private mortgage insurance can be removed.
- Maricopa County loan limit: $510,400
- Down payment required: 3.5%
- Owner occupant requirement: To obtain an FHA loan, you must purchase the home with the intent to occupy the property as your primary residence for at least 1 year.
- Mortgage insurance: FHA loans require the borrower to pay monthly mortgage insurance. Unlike conventional loans, FHA mortgage insurance lasts for the life of the loan and can only be removed in limited circumstances. Purchasers who obtain an FHA loan must also pay an up-front mortgage insurance premium when the loan is funded. This fee can be added onto the loan balance.
- Maricopa County loan limit: $331,760
- Down payment required: 0%
- Who is eligible: the purchaser or their spouse must meet the basic service requirements set by the Department of Veterans Affairs, and have a valid Certificate of Eligibility. You can check your eligibility here, or speak with a licensed loan officer.
- Owner occupant requirement: To obtain a VA loan, you must purchase the home with the intent to occupy the property as your primary residence for at least 1 year.
- PMI: none
- VA funding fee: VA purchasers must pay a funding fee when they obtain a VA loan. The amount of the funding fee varies based on the buyers down payment and whether the buyer has utilized a VA loan in the past. To view the current VA funding fees, click here
All three of the above loan types can be useful and there is a time and place for each. Before starting your home search, it is always best to talk to a licensed loan originator to see how much you qualify for, and to determine what loan types would be best for your situation.
Happy house hunting!
Robert Ito, Realtor
My Home Group Real Estate, LLC