Finding and securing the right home loan is an essential part of the homebuying process. Although most home loans have typically encouraged a 20% down payment, incentivized programs for eligible first-time home buyers have reduced downpayment requirements to promote homeownership.² Now, obtaining a home loan with a low-down payment mortgage, such as a 3% down or a zero-down mortgage,¹ has become a quicker pathway to homeownership.

Since homeownership represents a long-term investment for prospective home buyers, understanding your long-term goals can   help you identify the low-down payment mortgage that’s right for you. In addition, the more you can learn about the specific features and differences between a 3% down and zero-down mortgage, the more prepped you’ll be for future success when buying a home. 

3% down payment mortgages.

Three-percent down payment mortgages require putting down 3% of the home’s purchase price. While exact amounts vary depending on the home you intend to purchase, a 3% down payment can be preferable and more affordable to prospective home buyers than a traditional 20% down payment (or even the 5–10% down payment required for jumbo loans). Although a 3% down payment still requires more than putting zero down, aiming for and reaching a savings goal for 3% down can help set future homeowners up for success before moving in. 

Also, with monetary collateral in play, lenders may look more favorably upon your application when you make a 3% down payment. For example, you could obtain better loan terms, which include a potentially lower interest rate. With certain low-down payment mortgages, such as the Popular Affordable mortgage, you might benefit from even more savings by avoiding private mortgage insurance (PMI) fees.

With a 3% down payment, prospective home buyers can build equity as soon as they take ownership and may even be able to afford a higher-priced home. Reducing the financed price by 3% can also result in lower monthly payments, which leaves more in a homeowner’s monthly budget for other expenses. Although it may take you longer to save up for a 3% down payment, the savings habits it demands can also help you cover closing costs and shore up your emergency fund for unexpected expenses down the road. 

If you want to learn more about a Popular Affordable 3% down payment mortgage, consult with a home lending officer. 

Pros and cons of 3% down payment mortgages.

Even at a small percentage of the home’s purchase price, a 3% down payment can give prospective home buyers an advantage in achieving homeownership. 

Pros

• Homeowners build equity from the outset of the loan
• Applications may be looked upon more favorably by lenders as they represent less risk
• 3% down payment mortgage option may result in lower interest rates, more manageable monthly payments, and more favorable lending terms
• Prospective home buyers may be able to afford a higher-priced home 
• More achievable than a 20% down payment
• With certain mortgage options (such as Popular Affordable mortgage), home buyers may avoid private mortgage insurance (PMI) fees

Cons

• May not be immediately affordable for potential home buyers on a tight budget
• Requires additional funds beyond those already set aside for closing costs, moving, home improvements and other expenses
• Prospective home buyers may need more time to build a bigger nest egg for costs associated with homebuying

Zero-down payment mortgage.

The main benefit of a 0% down mortgage¹ is that it does not require you to put anything down. Many first-time home buyer assistance programs feature 0% down payment mortgage options, where prospective home buyers finance the entire home purchase. A 0% down mortgage can reduce one of the main costs associated with purchasing a home, leaving you more funds to pay for closing costs, moving, and other additional fees.

Zero-down mortgages appeal to first-time home buyers and experienced buyers who may struggle to source the funds necessary for a down payment. However, the lack of collateral can affect a lender’s final decision in reviewing 0% down home loan applications, as they represent additional risk.

Likewise, a 0% down payment can compel lenders to require private mortgage insurance to mitigate risk. Although it acts as a safeguard for lenders, private mortgage insurance can significantly affect a homeowner’s monthly mortgage payments and increase the overall cost of a home purchase.  Not all first-time home buyer programs may waive the PMI requirement.

Pros and cons of a zero-down payment mortgage.

While a 0% down payment mortgage loan1 can look attractive, it does come with a few key disadvantages.

Pros

• Can break down some of the financial barriers associated with achieving homeownership
• Allows first-time home buyers to enter the housing market sooner rather than waiting to save up a down payment before moving forward with a home purchase 
• Allows prospective home buyers to reserve their savings for closing costs, moving fees, and home improvements
• Removes one of the more significant costs associated with financing a home 

Cons

• Home buyers lack equity at the outset of the home loan
• May presents greater risk to lenders
• Borrowing costs (i.e., interest rates) are typically higher, increasing the home’s final purchase price 
• Limited availability of zero-down mortgage lending options 
• Zero-down mortgage loan could require PMI, thus increasing monthly payments and the overall cost of homeownership 

Which is better: 3% or 0% money down mortgage?

Future home buyers should consider their short and long-term goals when deciding whether to put 3% or 0% down on a home purchase. Putting 3% down may help increase your chances of approval for a home loan. You can present sellers with a more competitive offer while lowering the home’s final purchase price. If you decide to sell the home in the short term, a 3% down payment can also help you build equity faster.

On the other hand, a 0% down payment allows you to maintain your emergency fund for closing costs, moving expenses, and home improvements. If you plan on staying in the home for more than a few years, putting nothing down may be a better option, as you’ll have time to build equity.

Consult with a home lending officer to discuss the benefits of 3% down payment options that are available to you.

Set your home up for success with a 3% down payment.

Prospective home buyers often have the option to choose between a 3% and 0% down payment mortgage. Although putting zero down can offer future homeowners flexibility, a 3% down payment provides additional benefits that can ultimately save money.

A Popular Affordable 3% down mortgage loan option allows prospective buyers to put 3% down and finance up to 97% of the home’s value, all without paying the cost for private mortgage insurance. With a Popular Affordable mortgage option, you may also be eligible to receive lower interest rates and more favorable lending terms and get the opportunity to build equity from the outset. Discuss your down payment options with a financial advisor or home loan officer today and learn how you can take advantage of a Popular Affordable 3% down mortgage.