In a perfect world, as a homebuyer, you would have 20 percent of the purchase price of your home set aside for a down payment. But we don’t live in a perfect world, and while it’s certainly nice to have a sizable down payment at the start of your home search, it’s by no means a requirement.
A recent article from realtor.com outlined different strategies buyers can use to purchase a home, even if they don’t have a ton of money set aside for a down payment, including:
Explore low down payment loan options. The government offers a number of low (or even zero!) down payment options, including USDA loans, FHA loans, VA loans, and HUD homes (homes owned by the U.S. Department of Housing and Urban Development that typically offer buyer incentives, including no or low down payment options). If you’re looking to buy a home with a small (or no) down payment, research these loan programs to see if you qualify.
Pay private mortgage insurance (PMI) on a conventional loan. If you have some money saved for a down payment, you may be able to get a conventional loan for your home with private mortgage insurance. With PMI, you can put as little as 5 percent towards a down payment when you buy your home (sometimes even less!) and then pay a monthly insurance premium — typically 0.3 to 1.15 percent of your loan total — until you pay down your mortgage enough to reach 20 percent equity in your home.
Get a gift. Lenders generally don’t want you to borrow money from loved ones for your down payment. But if someone gives you the money — without any expectation that you’ll pay it back — that’s a different story. If you’re lucky enough to have a friend, family member, or other loved one that’s willing to give you money to put towards your down payment, that gift could help you successfully buy a home. (Just make sure to ask your lender for the rules and requirements they have, such as a letter from the person stating it’s a gift, and how long you need to have the money in your own account before purchasing a home.)