Here's a recent question from a prospective home buyer:
"We want to buy a house right now. We can easily afford a mortgage payment, but we don't have a 20% down payment. What are our options?"
Here's the short answer: If you have good credit, you can probably get a loan. But, without a sizeable down payment, your costs will go up.
To start with, you'll need available funds to cover your closing costs, taxes, and insurance.
But keep this in mind: Without 20 percent down, you'll usually have to pay for Private Mortgage Insurance. The idea is that people who put their savings (equity) into a property are much less likely to default on a loan. Without a financial contribution from the buyer, the lender wants insurance you will make the payments on your mortgage.
The cost of PMI is based on the amount you can put down and your credit score. According to Mortgage lender Freddie Mac, the cost is from $30 to $70 per month for each $100,000 borrowed. This is added to your monthly payment. You can see from the wide variance of the PMI monthly premium, a larger down payment and a higher score can make a big difference in your payment.
FHA backs loans with down payments of 3.5 percent. It also has lower credit score requirements. In exchange, buyers pay a mortgage insurance premium.
For veterans, a VA loan requires a funding fee of 2.15 percent of the loan upfront in lieu of PMI. But in an active market, some sellers are reluctant to consider an offer with VA financing due to the 100% financing and the inherent problems with appraisals.
There are many "creative" financing products for buyers with five and ten percent down payments. A popular alternative to a 20% down mortgage is an 80/10/10 program, which means a ten percent down payment with a ten percent second mortgage taken simultaneously with an 80 percent mortgage. In many cases, this can eliminate the need for PMI.
Questions? We can help. We work with an excellent mortgage broker who will search all the currently available financing problems to find the one that best fits your financial situation. Just call or text us at 813-244-9561 or send an email to JillReid@JillReid.com and we'll send you his contact information.
Jill Reid
Exceptional Real Estate
813-244-9561
JillReid@JillReid.com
www.JillReidGroup.com