Coming up with a down payment in today’s economy can be difficult. In most cases the down payment is expected to be 20% of the purchase price, and in some markets where housing prices are high that can be nearly impossible for the average person to save. So are there ways to get around this? Can you buy a home even if you don’t have the down payment? There are a few ways to get into a home in spite of lacking the required 20%.
The 80/20 Loan
Also known as a piggyback mortgage, an 80/20 loan is a simple way to get a home without a down payment, but it can be a bit more expensive—or a lot more. Basically, you take out a separate loan for the 20% portion of the purchase price. You are financing your down payment. You then take out a larger loan for the remaining 80%. The interest rate on the 20% loan is usually a lot higher than the larger loan, so the best bet for any homeowner is to pay it off as quickly as possible.
The 20% portion of the loan is usually on a shorter term than the larger portion as well, and may have a balloon payment. This means, for example, that the loan might amortize over 15 years, but after 10 years a balloon payment is due—meaning you have to either refinance or pay the balance. There are also some variations on this loan, such as an 80/15/5 loan, where you put down 5%, take out a 15% loan for the rest of the down payment, and then finance the remaining 80% as a standard mortgage.
100% Financing Loans
While this type of loan used to be easier to get, today fewer places offer them. There are still some places where you can get 100% financing on your home, but be prepared to pay PMI—Primary Mortgage Insurance. This is something that the mortgage company will charge to protect themselves against the possibility that you will default on the loan. It is charged on any loan when more than 80% of the value is being financed in most cases. These 80/20 loans avoid PMI by financing less in one loan.
It is possible to buy a home with no or very little down payment, and there are a few other special programs such as FHA loans out there to help. Do your research, and be sure you know which option will best fit your budget.