October 20, 2016

A Down Payment of Less than 20% Is OK. Really.

A Down Payment of Less than 20% Is OK. Really.

Did you know that the average down payment among first–time homebuyers is 6% and it's 13–14% for repeat buyers, according to the National Association of Realtors®? It's possible to put down even less.

Many potential homebuyers think that only the Federal Housing Agency (FHA) helps make mortgage loans with low down payments. Not true.

Freddie Mac's Home Possible® mortgage products let qualified homebuyers put down as little as 3%.

If you make a low down payment, however, you may need to buy mortgage insurance (MI). You could pay less of it and realize other related benefits with a Home Possible loan vs. an FHA loan:

  • FHA
    • You pay MI for the life of your loan if your down payment is less than 10%.
    • You pay MI upfront and monthly.
    • Your upfront MI premium is added to your loan amount. Because your loan amount is higher, you pay more in interest on your mortgage over time and build equity more slowly.
  • Home Possible
    • You can stop paying MI when your loan–to–value ratio (LTV) is less than 80%.
    • You pay MI monthly or once yearly.
    • MI does not affect your loan size. More of your monthly mortgage payment can go toward the principal balance on your loan, so you build equity faster. An added benefit: You lower your LTV to 80% faster, at which point you can stop paying MI.
    • For a slightly higher interest rate on your loan, your lender can fund your MI. This gives you the flexibility to make some choices, based on your financial priorities.

Learn about homebuying and homeownership on the My Home by Freddie Mac® web site. Or talk with an approved housing counselor.