First Time Homebuyer Information & Education
Do I need a down payment?
Do I need a down payment? - This is a question that a lot of home buyers have, especially first time home buyers. Fortunately, if you cant afford to make a down payment on a home, there are still options that allow you to get into a home. It is even possible for you to buy a home with little to no money out of your pocket at all.
Down payments are usually discussed as a percentage of the sale price of the home, such as 20% down. On a $200,000 home, 20% would be $40,000. In addition to the down payment, there are additional closing costs which include various fees and prepaid amounts. Even if you have 0% down you usually have to pay closing cost, which are typically between 2% and 5% of the sales price of the house. Sometimes your real estate agent can negotiate to have the seller pay a certain percentage toward closing cost. Or, your mortgage broker may pay a certain percentage toward closing costs in exchange for you agreeing to a slightly higher rate loan.
In some cases a lender may allow gift funds to be used in lieu of a down payment. If you have a friend, or family member that is willing to "gift" a portion of the down payment for you, the lenders only requirement is that it must really be a gift and not a loan that you are required to pay back.
This question will heavily depend upon your credit scores, credit history, debt to income ratios and your mortgage loan application package as a whole. In order to qualify for no down payment you have to have reasonably decent credit, a stable 2 year job history, and a debt to income ratio that is acceptable to the lender's guidelines. Zero down loans are becoming increasingly popular and they are helping more and more Americans each year to realize their dream of homeownership.
There are many programs available for 100% financing for borrowers who have little or no liquid assets for a down payment and/or closing costs. There are also options available to help borrowers who don't have the money for closing costs. You can try and negotiate for a seller assist, where the seller pays for a portion of your closing costs usually up to 6% of the purchase price. Another alternative is to use a 103% program, this is when you finance 103% of the purchase price and the additional 3% is used to help pay for closing costs.
One of the most popular ways to acheive buying a home with no down payment is to structure a piggyback mortgage. A piggyback mortgage is a subordinate mortgage of 20% of the purchase price, in addition to the 80% first mortgage. Piggyback mortgage also helps home buyers with no downpayment to avoid spending on private mortgage insurance (PMI).
FHA can be a good alternative and allows for Down Payment Assistance. FHA loans are paritially insured by the Federal Housing Administration and will allow for some damaged credit. FHA will also allow someone to buy a home with no credit score as long as alternative credit references are available. Homeowners are generally required to pay Mortgage Insurance on an FHA loan, however the monthly premium is significantly less than on a Conventional loan.
Not enough money for down payment - If you are like most people, saving up for a down payment can be a major hurdle when buying a home. However, there are many ways to get into your home without having the burden of saving up for a down payment.
You can choose to obtain an 80/20 loan if you do not have enough money for a down payment. Your first mortgage will be 80% of the purchase price and your second mortgage will be for 20% of the purchase price. By obtaining an 80/20 home loan, you will be able to buy a home with zero money down. This type of financing is becoming extremely popular and it also allows you to avoid paying mortgage insurance, also known as PMI.
If you're purchasing a home, 103% financing is available. With this loan program you can finance the sales price, and most of the fees or prepaid items.
If you have decided to save a larger down payment for your new home purchase, you should use the mean time to carefully review your credit report for errors. Most credit reports contain false or outdated information that could cause you to have a lower than expected credit score. Lower scores usually mean a higher interest rate. Combine a cleaner credit report along your larger down payment and you will be much more likely to get a loan approval with favorable interest rates.
Depending on the type of loan program you are pursuing you may be able to receive a gift from a friend or family member, or as concessions from the seller of the property that will help pay for closing costs and allow you to buy a home with no money down.
If you do not have enough money for a down payment we can provide you with alternative ways to finance a home with little or no down payment. Plus, most lenders have programs that allow borrowers to finance 100% of the purchase price. So, homebuyers should not let a lack of down payment get in the way of them owning a home.
Deciding how much money to put down on a property is an important decision. Often people start out thinking they don't have enough money to put down. Many times they find that they have more then enough and putting down the original 20% would have been a mistake. It's important to discuss your short and long term goals with a mortgage professional. This will make you more informed and in a better position to make a financial decision.
Information listed above is to be used for educational purposes only and is not guaranteed
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