Saving a 20% down payment is simply unrealistic for many homebuyers. Luckily, there are numerous mortgages that require only a 5% or lower down payment. You may have to pay private mortgage insurance (PMI), but a low or no down payment mortgage can get you into the property market faster.
If you can’t come up with a big down payment, you don’t have to give up on buying a home. There are programs available for homebuyers with less than 5% to put down on a home.
Getting a loan with such a small down payment inevitably means paying more in interest over time. The difference in interest you’ll pay over the life of the loan can be significant. Here’s an example:
Most home loans require a 20% down payment. But some products have a minimum down payment of as low as 3%. This means you can forget the 20% and buy your property with a smaller down payment.
There’s only one catch. Getting a loan with less than 20% down means you’ll have to pay private mortgage insurance (PMI). This is an extra cost that protects your lender, not you, in case you can’t repay your debt. It’s a cost that adds up to thousands of dollars, especially if you’re borrowing 95% of a property’s value.
Before considering getting a loan with a 5% down payment, calculate how much PMI will add to your costs. While PMI costs can be rolled into your mortgage payments — meaning you can borrow this sum along with the money needed to buy a property, it will affect how much you can borrow.
It’s possible to buy a property without saving up a 20% down payment. But most lenders require at least 5% down.
In other words, they’ll lend you 95% of a property’s costs, but that 5% needs to be money you’ve saved. This is often defined as money that’s been sitting in your account for at least six months. But there are ways around this:
Using our comparison table, you can sort through loans with 5% down payments and read reviews of the various products and lenders. Look at the fees, flexibility and features the loans come with to get a better idea of which ones work for you.
When you’ve found a product you’re interested in, hit the See rates button and you’ll be taken to either a website or a form where you can add your details and get in touch with a mortgage expert. They’ll guide you through the application process.
To make the process easier, you’ll need to meet the following requirements:
Once you meet this criteria, you’re ready to proceed with your application. It’s important to ensure you have the following information and documents ready:
If you want a mortgage with lower interest rates and the most features, your best bet is to save up a 20% down payment. Unfortunately, that’s simply not realistic for everyone. Luckily, if you have good credit and are willing to pay a little extra for mortgage insurance, you can get a home with only 5% down.
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