June 7th, 2017 5:06 AM by Jackie A. Graves, President
If you believe that you need to make a down
payment of at least 20% to buy a home, you have lots of company. Although
putting down that much upfront certainly has benefits, it's not required. Also
important to remember: The money may come from sources other than your personal
average down payment among first–time homebuyers in 2016 was 6% and 14% for
repeat buyers, according to the National Association of Realtors. It's possible
to put down even less. For example, Freddie Mac's
Home Possible® mortgage
products let eligible homebuyers put down as little as 3%.
your loan amount and monthly payments would be bigger if you put down less than
20%. But also true, you could become a homeowner sooner. Plus, you can have
help in gathering your down payment.
of programs provide down payment assistance, with eligibility requirements
varying based on your location and generally limited to first–time and/or low–
and moderate–income homebuyers. Certain programs specifically benefit veterans,
Native Americans, and workers employed in education, health care, law
enforcement, and firefighting.
U.S. Department of Housing and Urban Development (HUD) gives grants to state
and local organizations nationwide. These organizations, in turn, use these
funds to help homeowners bridge the down payment gap. To find the programs in
your area, check out HUD's listing or Down Payment
Resource's handy tool.
and local housing finance agencies (HFAs) administer many of these programs. Go
to the National Council of State Housing Agencies' web site for a state–by–state
listing. Or visit the National Association of Local Housing Finance
Agencies' site, for local–level program information.
addition, some mortgage products let you use gifts from your family or employer
and grants or loans from not–for–profit or government agencies.
your down payment is less than 20% and you have a conventional loan, your
lender will require private mortgage insurance (PMI), an added insurance policy
that protects the lender if you can't pay your mortgage for some reason. The
cost varies based on your loan–to–value ratio — the amount you owe on your
mortgage compared to its value — and credit score, but expect to pay between
$30 and $70 per month for every $100,000 borrowed. The PMI may be cancelled
once you’ve built 20% equity in your home.
types of loans might require you to buy mortgage insurance as well. Depending
on the type of loan and its terms and conditions, the mortgage insurance might
be added to your loan amount, thereby also increasing the amount of interest
you pay over the life of the loan. In addition, you might have to keep paying
mortgage insurance even after the 20%–equity mark.
add up what this all means, using the following example:
5% Down Payment
20% Down Payment
Down Payment Amount
30–year fixed rate
Monthly Mortgage Payment (Principal + Interest)
Total Monthly Payment (Excluding Property Taxes, Insurance)
*Assumes a PMI rate of 0.51% — in this
case, applicable with a conventional loan until you have 20% equity in your
home or for the life of the
loan with an FHA loan.
much longer would it take you to save or otherwise piece together $40,000 than
you do, be sure to leave yourself enough of a financial cushion after buying
your home to feel confident that you can afford to keep and enjoy it.
following this series and
visit My Home by Freddie Mac for the full run down on all things
Courtesy of Freddie Mac - To view the original article click here