The largest upfront cost in purchasing a home is the down payment. Different loan programs have different requirements starting as low as 3.5%. There are also programs that offer zero downpayment options. Down payment assistance can be in the form of a grant that you never have to pay back, or a silent second mortgage that gets paid off when you refinance or sell your home. Grant programs often come with a slightly higher costs. Like all loan programs, qualifying for down payment assistance depends on your specific situation.
Fun Fact: Nearly 50% of people believe that you must have a 20% down payment to purchase a home
If your down payment is less than 20% you will be required to have PMI. Private Mortgage Insurance is an insurance product that pays the lender in the event there are losses associated with the loan. The policy premiums are paid by the borrower because their loan-to-value ratio is below 80%. The greater the risk in the loan because of deficiencies in down payment, credit, and capacity, the higher the rate is on the mortgage insurance. Once the borrower has made enough principal payments to reduce the LTV to 80%, the private mortgage insurance can be removed. You may also be able to remove your PMI once a certain amount of equity has been gained. Make sure to talk to your lender for specifics on removing your PMI.
