Answering All Your Application Questions For A Home Mortgage
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by: marciafreeman
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Its not always easy to save up enough to make the traditional 20 percent down payment on a home. Fortunately, lenders today offer many low down payment mortgages. But when deciding how much to put down, you should consider the following: Is 20 percent the standard down payment?
In order to qualify for a conventional mortgage, lenders usually require a minimum down payment of 20 percent. If you cannot manage to make the 20 percent down payment, you will probably be required to purchase Private Mortgage Insurance or PMI. The cost of PMI is usually equivalent to one half of 1 percent of the selling price of the property, and is intended to protect the mortgage company if you are unable to pay back the loan. Your overall mortgage costs will therefore be less if you come up with 20 percent down and can avoid having to pay PMI.
What if you put down less than 20 percent? If you are unable to make the 20 percent down payment, purchasing PMI may be your next best option. And once you reach 22 percent equity in your home (or sometimes 20 percent equity with a good payment history), you can get your lender to cancel the insurance.
An alternative is to apply for an 80/10/10 loan. This type of loan will save you from having to purchase PMI by paying half of the 20 percent down payment with another mortgage plan. 80/10/10 loans work on the principle that the bulk of the selling price of the home is paid for through the first mortgage, with 10 percent being paid off with a down payment, and the remaining 10 percent being paid off with another mortgage. Or you can apply for a government insured FHA loan. Again, you will have to pay for insurance, but you may qualify with a down payment as little as 3 percent.
What about the possibility of purchasing your home without having to make any down payment at all? It is possible to finance 100 percent of the purchase price of a home with a mortgage that requires no down payment at all. The downside is that these types of financing plans will entail much higher interest rates than typical mortgage arrangements. This will of course result in higher monthly payments for you. Also, because you didnt make the standard 20 percent down payment, you will have to pay PMI.
Lets review the options. When trying to determine how much to put into the down payment, you should explore your various options in order to find a plan that will best suit your circumstances.
Q: Are you interested in gaining equity as soon as possible and thereby decrease your monthly costs? If so, paying the 20 percent down payment is your best alternative.
Q: Are you unable to come up with a 20 percent down payment but want to avoid paying PMI? An 80/10/10 loan may then be your best option.
Do you want to buy a home as soon as possible in order to avoid the rising costs of home purchase but can only afford a 3 to 5 percent down payment? A: Maybe a government insured FHA loan would be a good answer.
Q: Do you have no savings at all but are so eager to enter the real estate market immediately that you are willing to pay the extra costs involved in a no money down mortgage? A: Provided you are able to handle the required payments and are confident your financial situation will enable you to refinance for a mortgage with better terms in the future, it could be the way to go. The important thing is to evaluate your own situation carefully before you decide how much to put down on a home.
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