Did you know? Did you know you do not need to save 20% of the purchase price of a house for a down payment in order to be ready to purchase?
When a home is purchased, the actual cost to purchase the house is the sale price + the closing costs (closing costs can vary but are in the neighborhood of 3% of the purchase price). Traditional “Conventional” mortgage loans (the most commonly known) require 20% down payment on the house. The lender finances 80% of the sale price with a 30 (or 15 year) mortgage. This most common purchase process requires $46,000 “cash to close” on the purchase of a $200,000 house., a $40,000 down payment and $6,000 in closing costs.
Conventional loans can be obtained with less than 20% down, but less than 20% down payment will mean Mortgage Insurance (MI) is required to protect the lender. MI is built into your monthly payment but can be eliminated when a certain time frame is reached or house value or a certain loan balance is reached (depending on the loan).
There are several other ways to overcome down payment hurdles without having to save tens of thousands of dollars:
1. Loans that allow less than 20% down payment:
a. FHA loans require 3.5% down payment (always has MI, but FHA mortgage insurance is the ONLY policy that also protects the borrower and not just the lender) An FHA loan on the $200,000 example changes the needed cash from $46,000 to $13,000. Still a significant amount of money, so please read on!
b. VA Loans (for qualified applicants) allows the buyer to finance 100% of the purchase price. (No MI required)
c. USDA Loans allow 100% financing for “rural” properties (No MI required).
2. Lenders often have “portfolio” mortgage products (loans they created and lend) specifically for First Time Homebuyers requiring less than 20% down (such as BB&T’s C.H.I.P. program). Check directly with large lenders, credit unions, and local banks for programs your preferred bank may have and if they don’t have one, branch out to a new lender. Better yet, shop around!
3. Believe it or not, many states have thousands of dollars for Down Payment Assistance Programs available to borrowers in certain income ranges. North Carolina; for instance, currently offers a 20% down payment interest-free loan, a $15,000 down payment forgivable, deferred program, Federal Tax Credits (a $2,000/year national program) and more programs depend on the availability of funding). Most state “Housing Finance Agencies” administer these programs and individual websites should be checked for available programs (such as North Carolina Housing Finance Agency at www.NCHFA. org). Local municipalities also may have down payment assistance programs (such as “Housecharlotte” from the City of Charlotte) FYI– search: “State Name” with “Housing Finance Agency” for example, South Carolina Housing Finance Agency to find an administrator in your state
4. Some lenders also have their OWN Down Payment programs, ie: Movement Mortgage is currently offering their own “Movement Assistance Program” (MAP), which is up to 3% of the purchase price as a GRANT that does not need to be repaid! Pair that with an FHA loan and you are in your own home with very little down. Fifth Third Bank also has a grant program, and these are just off the top of my head. Most importantly, ask questions. Call or message me with questions or guidance.
Home ownership IS attainable, even if you do not have $46,000 in the bank!