Brian Berman

President & Senior Loan Specialist
bberman@mortgage-atlanta.com
678.564.1522

Busting the “20% Down Payment” Home Loan Myth 

With the housing market as hot as it is right now, FOMO (Fear of Missing Out) is in full swing for home buyers. Add to that historically low interest rates and competition is fierce for available homes. Unfortunately for first-time home buyers, rising home prices and the misconception that they may need to put 20% down on a home might be holding them back from pursuing their dreams of home ownership. Mortgage Atlanta is happy to BUST that myth. For one, rent prices are rising in step with home prices – so you might actually end up SAVING on your monthly outlay by buying a home now, particularly with interest rates as low as they are. And – while 20% down is a great goal to shoot for to save you more over the life of your loan – it is NOT a requirement.

As a matter of fact, depending on the product you choose, your required down payment might be as low as 3%! That is the case for Conventional Loans for new home buyers – meaning that if you purchase a $200,000 home, your down payment will only be $6,000 down. $6,000! That’s roughly the same price as an all-expenses paid trip for two to Hawaii for a week – roundtrip flight, accommodations, rental car and dining included. One week’s vacation vs. many years of happiness in a home you love – we think the choice is clear. Ready to take the leap? Let’s take a closer look at Conventional Loans first…

A Closer Look at Conventional Loans

Also known as Conforming Loans, Conventional Loans are often backed by government-sponsored enterprises (GSE) like the Federal National Mortgage Association (AKA Fannie Mae) and Federal Home Loan Mortgage Corporation (AKA Freddie Mac). Designed to provide access to affordable home financing for millions of Americans, they are ideal for both first-time and seasoned home buyers who don’t wish to dole out a large down payment. While the minimum down payment for first-time homebuyers is just 3% of the purchase price, down payments for more seasoned buyers are slightly higher at 5%. 

What About Private Mortgage Insurance?

Any down payment under 20% means the borrower will be required to pay private mortgage insurance (PMI) on their loan. On average, PMI is .3-.5% of your loan balance paid monthly. PMI is insurance to protect the lender in the event that you default on your mortgage loan. 

Factors That Will Determine the Ultimate Cost of Your Conventional Loan

Only being required to put 3% down on a new home may make you fearful that your monthly mortgage payment will be extraordinarily high. However, as we mentioned earlier – with rental prices on the rise and interest rates at historic lows – you might wind up paying LESS for your mortgage than you will for your monthly rent. However, it’s important to keep in mind that you may not qualify for the lowest interest rate. Interest rates and the cost of your conventional loan will be determined by your credit score, loan-to-value ratio, occupancy type (permanent residence vs. vacation home) and property type (single-family home vs. condo). 

To Learn More About Conventional Loans, Watch This Mortgage Minute Featuring Mortgage Atlanta President and Senior Loan Specialist, Brian Berman!

So, what are you waiting for? Ready to pursue your dreams of buying your first home? The loan specialists at Mortgage Atlanta welcome the opportunity to help you secure a Conventional Loan at the best interest rate we can find. Connect with us via online contact form, by email at bberman@mortgage-atlanta.com or by phone at 678.564.1522 TODAY!

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