There has been a lot of talk recently that people need a 20 percent down payment if they want to buy a house with a mortgage. This seems to be especially the case with the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. But there are many situations in which homebuyers simply do not have enough cash on hand to put 20 percent down on a house. Does this exclude them from the real estate market? The answer is “NO!”
Mortgage interest rates are still low. They reached historically low levels over the past two years, which means there are more buyers wishing to purchase real estate while they can borrow money at a good rate. The important thing to remember is that you should not get discouraged if you do not think you have enough money for a 20 percent down payment. You have alternatives, and the best way to figure out how to purchase a home without a large down payment is to talk with a mortgage broker or mortgage banker about your options.
Why a 20 Percent Down Payment?
One of the reasons many mortgage lenders require a 20 percent down payment is that they want to be protected in the event borrowers cannot make their monthly mortgage payments and the home falls into foreclosure. This is why borrowers who make only a small down payment must purchase Private Mortgage Insurance (“PMI”). However, as stated earlier in this article, there are several alternatives that may not require a 20 percent down payment.
Home Affordability is More than Your Down Payment
The biggest concern potential homebuyers should have is not about the size of their down payment. Rather, they should be concerned about whether they can actually afford their monthly mortgage payments. The last thing homebuyers should want is to be “house poor.” When you are house poor, you can barely afford to make your monthly mortgage payments and you do not have much money left at the end of each month for other things – including savings.
What are Your Options?
FHA: If you are able to qualify for an FHA loan, you will be required to make a 3.5 percent down payment on the purchase of your home.
VA Mortgage: Members of the United States military and their surviving spouses may qualify for a VA mortgage, which requires no money down.
USDA Mortgage: The United States Department of Agriculture offers 100 percent financing to individuals who meet the qualifications as low to moderate income homebuyers. The property does not necessarily have to be in a rural area.
Fannie Mae and Freddie Mac: These loans require as little as a 5 percent down payment on the purchase of a home.
If you don’t have a 20 percent down payment, please do not think that you can’t own a home! Call the Loan Arranger today at (303) 862-4742 for great advice and guidance!