Source: Yahoo Finance
More than one-third of respondents in Consumer Reports’ national homeownership survey of more than 1,500 millennials said they didn’t own a home because they hadn’t saved enough for a down payment. They might be surprised to learn that since late 2014, Fannie Mae and Freddie Mac, the quasi-government entities that underwrite at least half of the country’s mortgages, have offered mortgages that require just 3 percent down, a reduction from the 5 percent down required for standard mortgages.
But a small down payment has its drawbacks. Until your home equity reaches 20 percent, you’ll need to pay mortgage insurance—an annual cost of usually 0.5 to 1 percent of the loan’s value, paid monthly—which compensates the lender if you default. (FHA mortgages require mortgage insurance for the duration of the loan.) You’ll also face larger monthly payments. And a large down payment has an edge with sellers because they perceive the mortgage as more likely to be approved.
An obvious tactic is to generate more income with a second job or part-time business and dedicate as much as possible to your down payment. But reaching your loan goal may require additional strategies and sources.