Down Payments Options
Traditionally, the biggest obstacle to buying a home with mortgage financing is obtaining the downpayment funds. In the past Mortgage lenders required at least 20% down. Today, government insurance programs and Private Mortgage Insurance make low downpayments possible. In some instances, local and state agencies will provide down payment assistance in the form of a loan or grant.
How to qualify for a low down payment?
Do not assume that you can obtain a low downpayment loan. Lower downpayment loans may require stricter credit and income requirements for your application file.
What makes low down payment possible?
Low downpayment loans are not as easy and common as they seem. Be thankful for low down payment loans.
Can I qualifying for low down payment?
To be considered for a low downpayment loan, you generally need to have:
- Sufficient income to support the monthly mortgage payment
- Enough cash to cover the down payment
- Sufficient cash to cover normal closing costs and related expenses
- A good credit background that indicates your payment history or "willingness to pay"
- sufficient appraisal value, which shows the house is at least equal to the purchase price
- In some instances, a cash reserve equivalent to two monthly mortgage payments
Closing costs, or settlement costs, are paid when the home buyer and the seller meet to exchange the necessary papers for the house to be legally transferred. On the average, closing costs run approximately 2% to 3% of the house price. This percentage may vary, depending on where you live.
Are low down payments possible?
Mortgage insurance protects the mortgage lender against financial loss if a homeowner stops making mortgage payments. Lenders usually require insurance on low down payment loans for protection in the event that the homeowner fails to make his or her payments. When a homeowner fails to make the mortgage payments, a default occurs and the home goes into foreclosure. Both the homeowner and the mortgage insurer lose in a foreclosure.
The homeowner loses the house and all of the money put into it. The mortgage insurer will then have to pay the lender's claim on the defaulted loan. For this reason, it is crucial that the family buying the home can really afford it -- not only at the time it is purchased, - but throughout the time period of the loan. Although the cost of the mortgage insurance is paid by the home buyer, or borrower, the mortgage insurer works directly with the lender.
Mortgage insurance is available to our Centris members. Remember that mortgage insurance is not the same as credit life insurance, also called mortgage life insurance. This type of policy repays an outstanding mortgage balance upon the death of the person who took out the insurance policy.
Down Payment Loans
Yes, but you can not use this strategy for all loan programs. The most popular program for this tactic is the Federal Housing Administration or FHA. FHA allows 100% gift funds for your down payment.
Another popular tactic, which can be used in a wider range of programs, is to borrow from your 401K program. If you have a 401K program with your employer, you can withdraw without a penalty for your downpayment and pay it back over a specified period. There are some drawbacks, the payment will be used in qualifying and your 401K account will not continue to grow as fast. Even with these drawbacks, it is often a smart move if this is your only option
