Many people believe they need a 20 per cent down payment to buy a house, but it’s possible to purchase even a brand-new house with as little as 3.5 per cent down — or even nothing down at all.
Most Kenyans hold the mistaken belief that a 20 per cent down payment is required to buy a home, even though many types of loans allow much smaller down payments.
The reality is that most of the time you don’t need 20 per cent.
The misperception might be typical of first-time buyers and people who lost their house to foreclosure during the 2008 financial crisis.
People oftentimes have the assumption that they have to come up with 20 percent down when really as little as 3.5 percent or 5 percent will get you into a home.
Low down payments aren’t just for resale homes. In fact, the same opportunities exist to buy a newly built home.
If a homeowner is buying a traditional single-family home from a builder, there aren’t any down payment requirement differences than if they were buying an existing house across the street.
So, what are the minimum down payments?
Conventional Loans
The minimum down payment to buy a home required for a conventional loan that conforms to known guidelines with a loan amount up to 4,500,000 is just 15 per cent of the house’s purchase price. If the amount is larger than 4,500,000 the down payment can be as low as 10 per cent.
Note: The down payment highly depends on the property and your seller.
Most lenders have jumbo loans with a little bit over 10 per cent down payment available in the marketplace.
Even smaller down payments are allowed for conforming loans.
SACCO Loans
The minimum down payment to buy a home with a SACCO loan is just 3.5 to 6 per cent of the home’s purchase price.
Mortgage Insurance
Low-down-payment home loans typically involve mortgage insurance or a funding fee. The insurance is paid monthly. The fee is paid upfront but can be financed as part of the loan amount or through a higher interest rate.
Custom-Built Homes
The down payment requirements for a newly built home are almost always the same as the requirements for an existing home, but there are two possible exceptions. The first exception is custom-built homes.
Many new construction homes are production houses built in large volume by homebuilding companies. These generally aren’t considered custom homes, even though they come with plenty of personalized options.
A true custom home means the buyers obtained financing to purchase land and hired a builder, and often an architect as well, to construct a home especially for them. In that case, the lender generally will require a larger down payment since the house doesn’t exist yet.
With custom homes, when the buyer is responsible for financing the construction costs, buyers typically use a construction-to-permanent, or C2P loan. With the construction-perm program, there is a difference in the down payment (compared with) an already-built home.
Apartment Homes
The second exception is the newly built condominiums.
Whether a buyer will need a larger or smaller down payment in this situation depends on the lender’s guidelines, type of loan, property location and proportion of units that have been pre-sold during the construction phase.
Nairobi is a place where lenders might require a larger down payment and a higher proportion of presales for a buyer to finance a newly built condo. It’s a little tougher (to buy with a low down payment) in the Nairobi market.
Get Prequalified
The bottom line is that most people don’t need a big down payment to buy a house — and some don’t need any down payment at all.
The only way to find out for sure is to talk to a lender. A lot of people have the income and means to buy a new home and are stuck on the notion, for whatever reason, that they can’t do it.
See Also: Creative ways Millennials can save for a Down Payment
