The Myth of 3.5%: Can You Really Get a Mortgage for Less than 10% Down?

It’s a question we get all of the time, especially from first-time homebuyers beginning to dip their toes in the real estate waters.

Can I get a mortgage with a 3.5% down payment?

While most prospective buyers know 10-20% is the norm, the continued marketplace buzz surrounding lower down payments makes many question the need for what can equate to hundreds of thousands of dollars in available cash. If a qualified buyer can make higher monthly mortgage payments, has a strong credit history and unquestionable cash flow now and in the future, can he get approval on a sizable mortgage even if he’s plunking down a fraction of the standard down payment?

The answer is…sometimes. Despite the housing market fall out just five years ago, the government continues to push banks to approve mortgages with as little as 3.5% down. The Federal Housing Administration—responsible for nearly one-third of all home purchase mortgages in the U.S.—included this in its recent guidelines for mortgages.

The fear, of course, is that homeowners will take on too much house—unreasonable mortgage payments, ballooning terms or simply more financial commitments surrounding home ownership than anticipated—catapulting the market back into its recession levels. A 30-year fixed mortgage on an $800,000 home with 20% down will run a buyer around $3,195 per month. With 3.5% down you’ll pay somewhere around $5,000, and nearly $700,000 in interest over time.

What’s more, in New York and New Jersey the FHA mortgage limit is $625,500 for a single-family house. With an additional 3.5% down, this equates to just under $650,000—for many homebuyers in this area that simply won’t be enough to cover their purchase.

Most banks and loan officers look for 10% down, minimally, with 20% being the standard recommended down payment amount before buyers jump in. While it’s possible to secure the financing you need to make the move, it’s imperative you explore all options—as well as what a lower down payment means now and in the long run—before launching your mortgage search.