What’s that looming in the Halloween mist? Is it…the down payment myth? Yes! One of the scariest creatures in the home loan universe, the down payment myth frightens would-be homebuyers by spreading misinformation wherever it goes. Down payments don’t have to be scary. Let’s make it disappear.
Trick Or Treat? You Must Have 20 Percent. This is the biggest trick of all. In their most recent survey, the Urban Institute reported that 39 percent of renters believe they need more than 20 percent down. However, most borrowers put down far less! The same survey showed that the national median loan-to-value (LTV) ratio for purchase money mortgages was 95 percent. That’s 5 percent down, and far more achievable than 20 percent. Down payments start at 3 percent for certain conventional loan programs and 3.5 percent for FHA loans. In addition, qualified borrowers can use down payment assistance programs, where available, to pay all or part of their down payment.
100 Percent Possible. Are there loans that don’t require a down payment? Yes. USDA and VA loans allow 100 percent financing. Both programs have specific requirements, but they offer an affordable pathway to homeownership to qualified borrowers. To learn more, contact your First Choice Loan Services Inc. mortgage loan originator.
First-Timers Only? While there are some programs for first-time homebuyers, there’s no such requirement for most lower-down payment loans. And the definition of first-time homebuyer may not be what you think. In general, a first-time homebuyer is someone who has not owned a principal residence for the three years prior to the date they purchase a home. There are other qualifying events, so if you are interested in a program for first-time buyers only, check further with your mortgage loan originator.
Don’t Be Alone. The first rule of a scary movie is don’t be alone in a creepy old house. That’s a good rule when you’re buying a nice home, too. Freddie Mac researched down payments sources, and found that nearly 25 percent of homebuyers received gifts or loans from family and friends. In another finding, a small but significant percentage of young adult borrowers (ages 25-34) had older (age 55+) co-borrowers and co-signers, indicating that older family members were helping them with their home purchases. This was particularly true for young first-time homebuyers. In addition, seller contributions may help offset some costs. There are limits on all “interested party contributions,” depending on the loan program, so again, consult your First Choice loan originator to find out what’s possible.
Smart Ways To Save For A Down Payment. With few exceptions, you will need to have some money for a down payment. Lenders want to know that you are serious about your home loan, and one way they judge is by your financial commitment through your down payment. There are plenty of ways to save for a down payment, including an automatic deposit from each paycheck, a second job, and foregoing the pricey coffee drinks. Remember to set aside whatever you save in a special down payment-only savings account. No withdrawals until it’s time to buy your home!
As Halloween approaches, don’t be afraid of your down payment. It’s not a chainsaw-wielding masked man. You’ll only find him in the movies. I hope.