Low Down Payments: 5 Things You Should Know

Posted by Steph Kaye on Saturday, May 7th, 2016 at 11:11am.

Realtors are a wealth of knowledge, however not all of them are acquainted with the many low-down-payment options available to their clients.  According to recent studies, 40% of repeat buyers and 66% of first-time home buyers are electing amounts less than 10% for their down payments.  It is important to understand the low-down-payment mortgage options available to you as a buyer and a borrower and the many ways in which you can save money.  

Shifting Housing Landscape

Roughly 45% of all mortgage transactions last year were refinances.  In 2015, there were more purchases than refinances, resulting in a purchase market and a 5% increase from 2014.  A 66% purchase to 44% refinance market for 2016 is expected.  This is excellent news for buyers AND sellers.  

Sellers Are Buyers

As a seller, you are likely to become a future buyer.  Don't underestimate the amount of equity you have because home prices rose roughly 20% from the first quarter of 2011 to the fourth quarter of 2014.  That is a significant increase in value.  In 2014, 37% of homeowners thought they held roughly 20% equity in thier homes, however 69% of homeowners actually held closer to 40%.  By the end of the third quarter of 2015, the number of homeowners holding great equity in their homes increased to 74.3%.  

Here is the bottom line: this lack of knowledge provides a great opportunity for homeowners to better educate themselves.  If you are thinking of selling, contact Lang Premier Properties to learn your home's true worth.  In addition, learn how much you will need to put down on your next mortgage loan in the event that you are not a cash buyer.  Learn about appropriate low down payment options in order to get the best deal.  

An EXPERIENCED REALTOR will take great care to save clients as much money as possible, especially first time home buyers.  In December of 2015, 83% of renters desired to purchase a home and that desire is even stronger for renters under age 34.  Many renters don't known the options available to them and such lack of knowledge could serve to prevent them from achieving their desired home ownership goals. 

Again, an EXPERIENCED REALTOR loves to educate clients on low down payment options, especially given that down payments are often the largest hurdle in getting to the home ownership finish line. 

5 Things You Should Know About Low-Down-Payment Options:

If you, as a borrower, decide to put less than 20% down on a home, you will need to purchase mortgage insurance (unless you elect to go the VA or USDA route).  Misinformation regarding mortgage insurance can often lead to mass confusion and it is imporant to have the facts about low down payment options in order to beat out the rest of your competition.  

1. FHA 

FHA is mortgage insurance.  Many consumers believe that the FHA (Federal Housing Administration) is vastly different than private mortgage insurers.  Both FHA AND PMI provide the same servce, however they do have a few differences.  

2. PMI 

PMI allows borrowers to put down less money as conventional loans with private mortgage insurance allow for slightly less down payments (sometimes as little as 3%) than FHA, which requires a 3.5% down payment.  Gift funds (in-law financing) are also a great means of low down payment, although conventional loans with PMI do not allow for the use of 100% gift funds.  

3. FHA 

The use of a conventional loan with private mortgage insurance enables buyers to put less monies down while ending up with less debt than would be accrued through an FHA loan.  Along with the monthly mortgage insuance amount, FHA charges upfront premiums, which are most often financed into the loan, increasing the amount actually borrowed.  Buyers with higher credit scores are best benefited by going the conventional route.  

4. The Credit Score Factor

Credit scores dictate most PMI premiums and the higher the borrower's credit, the lower the premium.  Borrowers with lower credit scores often benefit from a lower cost option via FHA as FHA premiums are not based on credit scores.  Borrowers with higher credit scores save more money via conventional loans. 

5. FHA Mortgage Insurance Cannot Be Terminated

Unless borrowers who are relying on government mortgage insurance through FHA put at least 10% down, they will be unable to terminate their FHA mortgage insurance.  Short-terms solutions are an advantage of private mortgage insurance, which is automatically dropped once the loan reaches 78% loan-to-value.  Once a loan reaches 80% of its original value, borrowers may request cancelation of the private mortgage insurance.  

The purchase market will only increase as we continue through 2016.  Understanding the above stated options will only serve to better equip you as you dive into the housing market in search of your next home.  Choose an experienced real estate agent who is well versed in down payment options and who will connect you with a lender who can provide you with the best possible options for financing your next home purchase.  

 

If you'd like to learn more, please don't hesitate to message Lang Premier Properties online or call us at 1-855-526-4466.

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