April 2nd, 2019 8:16 AM by Jackie A. Graves, President
Traditional mortgage down payments have
always been 10 to 25 percent of the total purchase price of the property.
usually still required of people who have owned a home for five or more years
and have built up enough in equity to cover most if not all of the down
payment requirement on another home.
first-time home buyers or those with little to no equity? In today's market, it
is prohibitive even for the most frugal of first-time home buyers to come up
with a traditional down payment. Houses that sell for $200,000 would require a
down payment of $20,000 to $40,000, but there are options.
look at some of them.
Administration loans are designed to help service people and veterans obtain
financing at very reasonable rates. They don't require a down payment or
mortgage insurance. These loans are backed by the federal government. These are
probably the very best loans available.
Housing Administration was created to help middle- to lower-income buyers
secure home loans. The FHA doesn't actually lend the money; instead, it insures
the loan. The FHA requires only a 3.5 percent down payment. There are
guidelines, and the buyer's credit is important to meeting these
Fannie Mae and Freddie Mac
federally chartered programs offer loans for 3 percent down. They
either own the loan or guarantee it. A buyer must meet certain
private lenders that have programs not requiring the full down payment, but
these generally have much higher requirements and higher interest rates.
Willingness to Pay, Credit History and PMI
In most cases,
regardless of the loan, a willingness to pay must be demonstrated by the buyer
in one or more ways. For instance, if the property is going to be the buyer's
primary residence, he is more likely to pay because he will be living there.
Credit history and willingness to pay criteria will help the borrower to
qualify for a loan with a lower down payment. Thus, it's important to have a
good credit history. Your debt-to-income ratio also has to meet the
require private mortgage insurance (PMI). Mortgage insurance is usually
required on any loan when the property owner doesn't have at least 20 percent
equity in the property. It is an insurance program that protects the lender and
allows them to offer lower down payment loans. The problem is that the money
spent for the insurance is not going to paying off the loan and achieving the
necessary equity. However, when the 20 percent mark is reached, the insurance
becomes unnecessary and ceases.
may not have to put a full 20 percent down to buy a home or rental property, it
is wise to put down as much as possible. A down payment shows lenders that you
are serious about the purchase. It also creates equity, helps your credit score
and often lowers your interest rate. As an added bonus, whatever you put down
is money you won't be paying interest on. Save as much as you can toward the
down payment and be sure to pay off as much debt as possible before
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