Are you interested in purchasing a home, and trying to figure out how much money you are able to afford for a down payment? Chances are, you have probably heard that you need a 20% down payment in order to purchase a home, but actually, certain loan programs allow you to pay lower down payments. There are several conventional mortgage options available for homebuyers who are able to put 10% down. If you are looking to purchase a home in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, contact Foundation Mortgage today to understand your best home financing options.
Conventional Loan Basics
A conventional loan is a mortgage that is not insured through the federal government, it is instead backed through private lenders. Conventional loans are a very common type of mortgage, and usually offer home buyers flexible terms and down payment options, as well as lower interest rates. Since conventional loans are not backed by the government, they pose a higher risk to the lender because they are not guaranteed money if a borrower is unable to make loan payments. Therefore, requirements for a conventional loan are generally stricter than non-conventional loans, (FHA, VA loans, etc.). Typical requirements for a conventional loan include:
- A credit score of at least 620-640
- A minimum down payment of 3%
- You will need private mortgage insurance if you pay less than a 20% down payment
- A debt-to-income ratio, (DTI), of 50% or less
10% Down Conventional Loan
Obviously, the higher down payment you are able to make, the lower your subsequent mortgage payments will be. But do not be discouraged if you are unable to pay a 20% down payment, you can still get a conventional mortgage with 10% down. If you put down less than 20%, you will be required to pay private mortgage insurance, (PMI), however, once you reach a loan-to-value ratio of 78%, you no longer need to pay PMI.
If you are able to afford a 10% down payment, there is also an option to get an 80-10-10 loan, also known as a piggyback loan. With this type of mortgage, the borrower puts down a 10% down payment, and the borrower receives a first and second mortgage at the same time, which funds 90% of the price of the home. Essentially, the first mortgage covers 80% of the loan value, and the second mortgage covers 10%, while the down payment covers the remaining 10% of the cost. With an 80-10-10 mortgage, the borrower does not have to pay for private mortgage insurance.
Applying For a 10% Down Conventional Loan
If you are interested in learning more about your home financing options and getting a conventional loan with a 10% down payment in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, contact Foundation Mortgage today. Our loan specialists can help you determine the best down payment and loan options for your specific situation.