I want to buy a home but don’t have 20% to put down. What are my options?
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Dear Credible Money Coach,
I want to purchase a home but can’t seem to come up with a 20% down payment. Can you give me some suggestions? — Bobbie
Congratulations on working toward homeownership! Saving for a down payment is a great first step when you’re getting ready to buy a house.
Going into a real estate transaction with a healthy down payment works to your advantage. A 20% down payment means you can avoid paying for private mortgage insurance — a type of coverage that protects the lender if you default on your loan.
However, you’re not required to pay 20% down. Depending on your credit and the type of mortgage you want, you may qualify with a smaller downpayment. But I recommend putting down as much as you can afford.
Loans that don’t require a 20% down payment
Certain types of loans allow you to qualify without a 20% down payment.
FHA mortgages are government-backed loans that are great options for first-time homebuyers, people with less-than-perfect credit or those who don’t have a sizable down payment.
Generally, you can put down as little as 3.5% on an FHA loan if your credit score is at least 580. If your credit score is lower than 580, you’ll need to come up with a 10% down payment.
If you’re a veteran or active-duty service member, or are married to one, you may be able to qualify for a VA loan, which requires no down payment. VA loans also don’t have minimum credit score requirements.
The same is true of USDA loans — no down payment and no minimum credit score requirements. But you can only get a USDA loan if the home you’re buying is in certain designated rural areas of the country.
Tips to get you to 20% (or more)
Every dollar you put down is instant equity in your home, and one less dollar you’ll have to pay mortgage interest on. But saving a 20% down payment can be challenging in the best economy, let alone in one still feeling the effects of the pandemic.
Here are five tips to help you save a down payment for a home.
- Build your emergency fund. If you’re struggling to save a down payment because unexpected expenses constantly force you to dip into your savings, focus on building your emergency fund first. With a cash reserve, you won’t need to tap your home savings to handle surprise costs.
- Pay off high-interest debts. If a chunk of your income goes toward high-interest credit card balances, focus on paying those off. Getting rid of that high-interest debt will give you more cash to put toward your down payment savings every month. Plus, it will help your credit score.
- Make sacrifices. Take a look at your monthly expenses and identify one costly thing you can eliminate. Once you cut back, you can put the cash toward your down payment.
- Boost your income. If it’s been a while since you got a raise, it might be a good time to ask for one. Then put the extra income right into your down payment savings account. If a raise isn’t possible, consider taking on a part-time job or some freelance work on the side.
- Put your savings on autopilot. Many employers can split a portion of your paycheck into a savings account. Adjust your direct deposit, so you build down payment savings without it passing through your spending account.
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About the author: Laura Adams is a personal finance and small business expert, award-winning author, and host of Money Girl, a top-rated weekly audio podcast and blog. She’s frequently quoted in the national media, and millions of readers and listeners benefit from her practical financial advice. Laura’s mission is to empower consumers to live richer lives through her speaking, spokesperson, and advocacy work. She received an MBA from the University of Florida and lives in Vero Beach, Florida. Follow her on LauraDAdams.com, Instagram, Facebook, Twitter, and LinkedIn.