Many people are hanging on to their current living situation due to lack of funds to use towards housing down payment. However, if you’re one of these future homeowners that have taken stock of your current financial situation and determined you just do not have the funds needed to purchase a home, you may be surprised to find out your belief is a myth. When is the time to move from Renter to Buyer, this decision lies within the individual but no matter the reality, the fact is whether you rent or buy you pay for the place you live. Knowing what to expect when you begin to seek out a new home and the Mortgage Application Process that will come with it can be a mental obstacle. There are some myths surrounding purchasing a home. I hope to address 3 major myths about Housing Down Payments.
It was not too long ago America felt the devastation of the Housing and Mortgage Meltdown. Was it because we over built for demand or had to many easy dollars chasing housing starts? That is kind of like asking which came first, the chicken or the egg? There were so many causes of the meltdown of 2008 and it really would not matter where anyone pointed a finger because no matter who we blame it was a shared failure. Prior to 2008 mortgage loans were in abundance and fairly easily qualified for, no doc mortgages without verified income with higher interest rates were available and the with all the other failures and greed the mortgage industry collapsed and with it the housing market. The mortgage industry is now one of the most highly regulated industries in America. If you are to walk in to a lender now with stacks of cash for down payment every dollar has to be accounted for, meaning what is the source. All Lenders have to comply with money laundering laws and are required to verify where every dollar applied towards housing down payment or total closing costs come from. My daughter will be getting married soon, her fiancé has managed his money well. He saved his money and paid his way and didn’t even have a credit card. When he began to look for a home he followed my wife’s advice and established a credit card for a trade line. This established a viable and traceable history of handling credit. When he applied for the mortgage loan and the credit card was at a zero balance and the Credit Report reflected his high balance at one point was $214.00, the lender needed to see the payment for the credit card coming out of his checking account. The documentation of source of housing down payment is no joke. If you plan on selling stock, or a vehicle or finally getting some cash out from under the mattress it must be documented correctly. The money in the mattress needs to be deposited into a bank account and usually a 2 month seasoning. If you sell a vehicle, you will need a signed Bill of Sale and the name and contact information of who you sell it to for documentation if you plan on using the proceeds towards your housing down payment.
This would be an untrue statement, this is false, however you would be surprised how many people think they must have 20% housing down payment to purchase a home. A FHA Loan is the most popular loan in America and according to FHA Minimum Guidelines you can qualify for a FHA Mortgage with as little as 3.5% down payment with a minimum FICO score of 580. To clarify there are some guidelines that must be met with a FICO Credit score less than 620. Even after the turmoil and disruption of the Mortgage Meltdown there are now Conventional Mortgage Loans available with a minimum of 3% housing down payment. They are available and the criteria is stringent but their are conforming loans available with as little as 3% down payment. More commonly are conventional loans requiring 5% or 10% housing down payment. The fact remains a borrower does not have to apply 20% housing down payment. Where I believe people come to these false conclusions is surrounding the private mortgage insurance (PMI). PMI will be required on conventional mortgage loans with less than 80% Loan to Value. PMI may be removed after a minimum of two years and the home value has at least 20% equity. This is insurance in the event the borrower defaults on the mortgage. Affordable Mortgage financing is available, preparing ahead of qualifying for a mortgage can never be too early.
I have clients that have made a conscious effort to apply at least 20% housing down payment. The logic is of course, the more the housing down payment the less the payment, avoiding interest paid saving thousands over the term of the loan. It is true the less principle amount the less interest charged and if you can afford it then it is a good logical reasoning. However, every situation is different. How much are you losing in Rent paid to a Landlord each month? Do you get to write off any portion of your rent payment in taxes? If you are paying $1500 a month in rent and waiting to accumulate 20% housing down payment, you could be making a financial mistake. Quite possibly and most often you can buy a home with far less than 20% housing down payment and have a lesser monthly obligation and the sweetest financial part of the deal is the tax benefit in the interest paid. Uncle Sam will allow you to write off all interest paid on your residence, reducing your income tax burden significantly. Consider this, pride of ownership, security, tax benefit, and historically a home will appreciate in value improving your financial net worth. There are many programs available with little to zero housing down payment. VA, reserved for honorably discharged veterans of the armed forces with a Certificate of Eligibility can obtain a mortgage with zero down payment. USDA (United States Department of Agriculture) encourages home ownership in many locations in America with minimal required housing down payment, sometimes zero. The Larry Stepp Team at Gustan Cho Associates is available for your resource and guidance 7 days a week, holidays and weekends. We look forward to assisting you.
Larry Stepp 407-922-4755 LarryS.HomesNetwork@gmail.com