Relocation mortgage loans: How to relocate with a low down payment

Employees who are relocating may be excited about a new chapter of their lives, but there are also important things – such as financial considerations – to think about when they’re preparing for this new adventure. For starters, they need to have set aside money for a down payment for a home. Other issues include the cost of living in a new city, available housing inventory and the upfront cash necessary to purchase a home.

One common misconception among potential home buyers concerns the amount of money required to purchase a home. Indeed, many people tend to think they need to put down 20% as a down payment; in reality, the median down payment for first-time home buyers in 2024 was just 9%. This is good news for transferees who are on the fence about the affordability of relocation – turns out that starting a new chapter might be affordable after all.

Why do lenders require a down payment?

The answer is simple: Lending people money is risky. If you let someone borrow money, there is a chance you won’t be paid back. To help mitigate the risk of lending, banks and investors require a down payment as a show of good faith that the borrower is committed to the home purchase process.

Down payment requirements often come from the source that is providing the funds to lenders, banks and credit unions. Loans through the Federal Housing Administration, Fannie Mae and Department of Veterans Affairs are a few of the agencies that require a down payment.

Relocation mortgage: How much down payment is enough?

There are no right or wrong answers when it comes to how much money someone should set aside for a down payment. The average first-time home buyer, for instance puts aside 6% - 7% of the home’s sale price. Repeat home buyers often put down an average 13% down payment. That said, every home sale is unique and there are other relevant contributing factors transferees need to consider, including:

• The minimum down payment required for the loan
• Having a sufficient emergency fund for their new home
• The cost of repairs necessary to the potential new home
• Existing debt and recurring payments
• Moving expenses
• Furniture and appliances
• Home decorations

Where did the 20% down payment rule come from?

The widely held belief in the 20% down payment rule likely comes from the concept of private mortgage insurance requirements. PMI protects a lender if a borrower defaults on their loan, and it’s not required if the borrower is able to put down a 20% down payment or more.

Keep in mind that PMI doesn't stick around forever on your home loan. Once you hit 20%, you can ask to have PMI dropped. Or you might simply refinance your loan to get rid of it.

If a transferee isn’t comfortable with the idea of paying PMI, they may qualify for lender-paid mortgage insurance. Here’s what that means: Instead of a monthly premium attached to their mortgage, lenders build the cost of covering insurance into the mortgage rate. The borrower will thus have a slightly higher interest rate instead of a higher monthly mortgage payment.

The pros and cons of a larger down payment

When preparing to make a large purchase, it’s important to know the good and the bad. Below are some of the pros and cons of making a larger than average down payment.

Pros

• Less interest: A larger down payment means you’re borrowing less money from their lender, so you’re accruing less interest as you pay off your home.
• Lower mortgage rates: With a larger down payment, lenders are assuming less risk. The lower your loan-to-value ratio – basically how much you owe compared to what your home is worth – the more likely your lender or credit union will offer you a lower interest rate.
• Reduced private mortgage insurance: PMI costs can range from 0.5% - 2%, depending on factors such as the mortgage loan balance, down payment, loan term, borrower credit profile and type of mortgage. Borrowers who put down 20% or more are less likely to be required to pay PMI.

Cons

• Delayed entrance to housing market: Saving for a substantial down payment is tough to do when you’re also paying for everyday living expenses. And the whole time you’re saving, the world keeps turning – the housing market could shift and home values could skyrocket, for instance. This could add even more time that transferees need to wait to relocate. Indeed, your relocation package could expire if you wait too long to make a move, potentially leading you to forfeit significant benefits and savings from their lender and employer.
• Less cash available: For employees relocating to a new home in a new destination, access to an emergency fund could be more beneficial than committing their entire savings to a down payment.
• It takes time to reap the benefits: It’s important for transferees to work closely with their mobility manager and their lender to understand all facets of their relocation. Many of the benefits of a large down payment are long-term rewards. If a transferee is planning on moving in a few years or there is a strong chance the business will relocate them again, a large down payment might not be the best purchase strategy.

Working with a mobility manager

When your job relocates you to a new town, your mobility manager will become a very important person for you as you start this new part of your life. A mobility manager coordinates the logistics of your move, which can get more complicated than you might think. Mobility managers will serve as your main point of contact, and they will help you create a smooth landing in your new home.

Mobility managers’ work covers a wide range of areas, such as helping international employees apply for work visas and ensuring school-aged children’s academic records are transferred to a new school. They also often engage with mortgage lenders to help find the best deal for new employees, creating a seamless transition into this new world.

Additionally, a mobility manager can:

• Coordinate with real estate agents to find appropriate housing based on your preferences and proximity to work
• Connect you with utility providers and service contractors
• Help members of your family find other work

Home loans that help

Not all mortgage loans are created equal – and that’s a good thing. It’s hard enough to save for a down payment; throw in an unstable economy and fluctuating interest rates, and it could feel downright impossible to save enough. This is where working with professionals can come in handy. 

The Rocket Mortgage^® Relocation team works to create a simple, straightforward relocation process for customers. A dedicated team of Home Loan Experts are fully trained on a company’s relocation policy, expectations and culture, ensuring relocating employees have a positive move from start to finish.

The Rocket Mortgage Relocation team offers exclusive pricing and benefits – our plan starts with a flexible $3,000 credit that transferees can use to buy down their interest rate or put toward closing costs.* To give relocating borrowers an extra boost of confidence when they’re looking for a new home, the Mortgage First program will verify their income, assets and credit upfront. With this plan in place, they will receive a fully underwritten approval before they schedule their first home tour.

Here are some loan options available to relocating employees:

• Conventional loans. These are the most popular home loan options for relocating employees. Under a conventional loan, a borrower receives a fixed-rate option with a term that fits their long-term financial goals.
• FHA loans. Under these plans, which are insured by the Federal Housing Administration, a qualified borrower with a credit score of at least 580 could purchase a home with just 3.5% down. Borrowers with scores as low as 500 may qualify for a home loan if they’re able to pay at least 10% down.
• VA loans. VA applicants must meet the necessary service requirements or be the surviving spouse of an eligible Armed Forces or National Guard service member. VA loans, which are insured by the Department of Veterans Affairs, can be used to purchase a home with no down payment.

The bottom line

Moving to a new location for a job isn’t just finding a new address, it’s the beginning of an exciting new part of your life. And contrary to popular belief, you don’t need a 20% down payment for your new home – it can be less than half that figure.

There are other steps you can take to make the move a better experience, including hiring a mobility manager who can handle nettlesome logistics and create an easy transition into your new life. They’ll take care of everything from real estate details to guiding you through the mortgage options that work for you. Also, partnering with an experienced relocation team can give you the peace of mind you need to move forward in and truly enjoy life in your new home.

Ready to get moving? Check out Relocation.RocketMortgage.com to learn more about exclusive discounts and benefits today.