Lending Myths Debunked

Author: Spencer Lee, VP, Sales Manager – Home Loans Division

One of the most common reasons that hold people back from purchasing a home in Hawaii is the belief that they need a minimum of 20% for a down payment. Many believe they need the minimum 20% to avoid paying private mortgage insurance (PMI). Hawaii News Now recently featured a story where Hawaii home buyers pay some of the highest down payment percentages in the nation, ranking #2 only behind California with an average of 21.32% (the average is 21.4% in California). This high average reinforces the belief that you need a lot of cash in order to buy a home.

I’m here to tell you that it’s not necessary to have 20% for a down payment. In fact, with a VA or USDA loan, you can put down as little as 0%. The FHA loan program features a minimum down payment of 3.5% for borrowers with a minimum credit score of 580.

VA Loans (Veterans Administration Loans)
VA loans are available to veterans, service members, and select military spouses (see U.S. Department of Veterans Affairs). Among the benefits of VA loans are: 0% down, no PMI requirements, competitive interest rates, and less stringent qualification standards.

USDA Loans (US Department of Agriculture Loans)
Among the requirements to qualify for a USDA loan, applicants must meet income-eligibility, agree to live in the home as their primary residence, and be a U.S. Citizen or Qualified Alien. Visit the USDA site for more information on the USDA Loan Program in Hawaii. Among the benefits of USDA loans are 0% down, lower than market interest rates, and low monthly PMI.

FHA Loans (Federal Housing Administration Loans)
FHA provides mortgage insurance on loans made by FHA-approved lenders. FHA loans are popular with first-time home buyers because of the low credit and down payment requirements. Visit the HUD website for more information on FHA loans.

Conventional Loans
Perhaps a conventional loan will work for you. There are several options available to avoid paying a 20% down payment and PMI.

Beyond the Basics is a blog dedicated to financial literacy in Hawaii. The stories found here discuss the financial issues and challenges unique to our island home. If you have a financial question that you would like discussed here, we welcome you to reach out to us at one of our social media accounts. #CPBbeyondthebasics #CPBgoingbeyond