In this article
If you’re a first-time home buyer, you may wonder how to make this real estate market work for you instead of against you. With elevated monthly rents, interest rates, and home prices, leasing and buying a place have become cost-prohibitive to many. Some have found a way to buy houses by taking alternate measures, like living with mom and dad or opting for less space. But if being roomies with the ‘rents or tiny-house living doesn’t appeal to you, a 3% down payment mortgage might be the perfect solution. We’ll dive into what it is, the requirements for this specific type of loan, the benefits, and the types of loans available to you. No matter the mortgage rates in Georgia, you can see what 3% down will do for you with the mortgage calculator Georgia residents count on.
What Is a 3% Down Payment Mortgage?
A 3% down payment mortgage is a mortgage loan where the borrower must make a down payment equal to 3% of the home’s purchase price. In traditional mortgage financing, a standard down payment is often 20% of the home’s value, which most people can’t afford. However, to make homeownership more accessible, some mortgage programs allow borrowers to put down a lower percentage, such as 3%.
This type of mortgage is particularly appealing to first-time homebuyers or those who may need more substantial savings for a larger down payment. It enables them to enter the real estate market with a lower initial financial commitment. Remember that a smaller down payment usually means higher monthly mortgage payments, and, in some cases, additional costs like private mortgage insurance (PMI) may be required. If a 3% down payment could work for you, start by researching mortgage rates in Georgia with experienced lenders like Moreira. Homebuying can be overwhelming, but if you start with the right partner, you can move forward confidently in your decisions.Explore your rate options. Start Here! (Feb 21st, 2024)
How to Get 3% of the Purchase Price In Your Possession
Though 20% used to be the norm, first-time home buyers can still find it difficult to source 3% of a home’s purchase price for the down payment. But there are several ways in which to achieve this goal:
Set a savings goal. Review your monthly income and expenses to identify where you can cut back. Allocate a portion of your income specifically for your down payment fund. Suppose you automatically transfer money from your checking account to a dedicated savings account each month. In that case, you’ll be more likely to contribute consistently—and less likely to find yourself online shopping with extra cash in your pocket.
Consider gifts or other windfalls. Do you have any special occasions coming up wherein you might be the recipient of family or friends’ generosity? Portions of those gifts could be saved and allocated to your down payment fund. Just be aware of documentation requirements and tax considerations.
Increase your income. Take on a part-time job, freelancing, or a side hustle. Cut back on non-essential items such as dining out, entertainment, or subscription services. Declutter your home and sell items you no longer need or use. Every little bit helps!
Use your 401(k). Contact your plan administrator to ask about the specific rules and options for accessing funds for a home purchase. Different plans may have varying regulations and restrictions. Still, many allow participants to take a loan against their account without any tax implications if the loan is repaid by a specific date.
The Moreira team has seen mortgage rates in Georgia go up, down, sideways, and everything in between. In addition to their mortgage calculator Georgia residents prefer, their experts are always on hand to offer advice on 3% down payments, as well as other options available to first-time homebuyers.See how much house you can afford. Start Here! (Feb 21st, 2024)
What’s Required for a 3% Down Payment Mortgage?
Though the underwriting rules of different mortgage rates in Georgia vary, there are some general requirements to consider if you’re looking at obtaining a 3% down payment mortgage:
- Minimum credit score of 620
- Reliable income and employment
- Clean credit report (no foreclosures or bankruptcies in recent years)
- Debt-to-income ratio (DTI) under 43%
In addition, the home must be your primary residence—sorry, no Airbnb side hustles here. The mortgage also can’t exceed conforming loan limits, the maximum amount of money a government agency is willing to lend for a home mortgage in a specific geographical area. This amount currently sits at $766,550 in most real estate markets. You may have to take a first-time homebuyer course, which would be helpful to complete even if it’s not an official requirement. These classes are designed to empower first-time homebuyers with the knowledge and skills needed to make informed decisions throughout the home buying process. From negotiating to doing the math with the mortgage calculator Georgia residents prefer, it never hurts to learn more—information is power.
Benefits of 3% Down Payment Mortgages
Are you eyeing a particular home? Check out the mortgage calculator Georgia residents use to see what putting 3% down would require. Whatever the number, it’s a far cry from the 20% that used to rule the real estate market. There are many benefits to opting for a 3% down payment, especially for first-time homebuyers.
Turn homeownership from dream into reality more easily.
One of the primary benefits is that a 3% down payment makes homeownership more accessible to those who may not have significant savings for a larger down payment or would struggle to qualify for great mortgage rates in Georgia.
Take advantage of lower initial costs.
A lower down payment means lower upfront costs, making it easier to enter the real estate market without having to save a substantial amount of money first.
Preserve your savings.
With a 3% down payment, you can preserve more of your savings for other purposes, such as home improvements, emergencies, or investments.
Enter the real estate market faster.
A lower down payment requirement also allows first-time homebuyers to enter the real estate market sooner rather than having to wait years to save a larger down payment.
Pull from flexible funding sources.
Some 3% down payment programs allow the funds to come from various sources, including gifts, grants, 401(k) plans or down payment assistance programs.
Leverage competitive interest rates.
Depending on mortgage rates in Georgia and your financial profile, competitive interest rates may be available for 3% down payment mortgages.Check out all your rate options. Start Here! (Feb 21st, 2024)
Types of 3% Down Mortgage Loans
As you’re exploring your options, it’s important to note that 3% mortgage loans can come as conventional or government-backed loans. The main difference between the two lies in the funding source and the entity insuring or guaranteeing the loan.
A conventional loan is not insured or guaranteed by the government. Instead, mortgage rates in Georgia are originated and funded by private lenders, like banks, credit unions, or mortgage companies. A conventional 97 loan works for first-time and repeat home buyers with no income limits and is offered by more lenders as an alternative to the standard 5% down. If you’ve got good to excellent credit but modest savings, this could be a great option. It also allows you to cancel private mortgage insurance (PMI) after a specific period.
The Fannie Mae HomeReady loan is another 3% down conventional mortgage option available to new home buyers who meet certain low-income requirements. Consider this if you’re a multigenerational household or looking to rent out extra units for additional income.
The Freddie Mac Home Possible 3% down loan also works within specific income limits and allows borrowers to buy two- to four-unit properties with 3% down, as long as they live in one of those units.See how affordable your home purchase can be. Start Here! (Feb 21st, 2024)
Other Low-Down Payment and No-Down Payment Mortgage Options
With mortgage rates in Georgia changing daily, it’s good to explore all your possibilities for making first-time homeownership possible. 3% loans are certainly great options, but they aren’t the only solution:
FHA loans are very popular with first-time homebuyers due to the low down payment requirement of 3.5% and flexible guidelines.
A VA (Department of Veterans Affairs) Loan is a mortgage loan program designed to provide eligible veterans, active-duty service members, and certain members of the National Guard and Reserves with the opportunity to purchase a home with no down payment. Yes, that’s 0% down.
A USDA loan, officially known as the USDA Rural Development Guaranteed Housing Loan Program, is a government-backed mortgage program designed to assist individuals and families in purchasing homes in eligible rural and suburban areas of the United States. At 0% down, it’s considered one of the best available loan programs.
Remember, the down payment isn’t the only cash you’ll have to bring to the table. Be sure to anticipate and account for closing costs. Without preparation, these can add up to a significant surprise that would be a big buzzkill for your big day. The Moreira team is an excellent resource for first-time homebuyers. They can help you estimate your closing costs, look at mortgage rates in Georgia, use the mortgage calculator Georgia residents prefer, explore neighborhoods across the state, and more.See How Easy it is to Get Your Custom Rate!