The traditional residential “Spring Buying Season” is beginning to bloom out. And like any industry, the residential real estate market has its challenges.
It’s estimated that residential inventory is about 7.1 million units short. That inventory squeeze may result in an accelerated increase in prices. If it doesn’t do that, the tight market will pretty much guarantee that home prices aren’t going be coming own anytime—if ever—soon.
And that probably means that if you’re in the market for a new home, you need to get in the market now before any acceleration begins. As buyers enter the market and apply for mortgage home loans, that same upward pressure could act to edge mortgage rates higher.
So, getting a grip on the mortgage universe can be useful.
Buying a home is probably the largest single investment many of us will make in a lifetime. And a significant part of this process is the mortgage down payment and, just as significant, is saving up for that down payment.
This takes time and sometimes many years to get to that point. When mapping your saving strategy, you need to decide what amount is right for you. In other words, how much money do you need to save for a down payment on a house?
And all this depends on your personal financial goals as well as the size and location of the home that you want that fits into those goals.
What is a mortgage down payment?
Simply put, a down payment on a mortgage is the cash amount you bring to the closing that makes up the difference between the price of the home and the loan amount.
What is the minimum down payment required for a mortgage?
These requirements differ, depending on the type of home loan you might want to consider:
Going conventional
The traditional mortgage is what we call a “conventional loan” and that down payment amount is 20 percent. For example, if the home you’re looking to purchase is $300,000, then the down payment will be $60,000.
If you’re able to put 20 percent down, this saves you from paying mortgage insurance, which is a fee that’s added to your monthly payments that protects lenders in case you’re unable to pay the mortgage.
Don’t have 20 percent? Don’t put your pencil down and walk away because there are alternative loan options out there.
There’s the 97 percent loan-to-value (LTV) route. This is a conventional mortgage in which your loan amount is 97 percent of the value of the home, and you only have to make a 3% down payment. Mortgage insurance will be required.
Even then, you might avoid having to pay a mortgage insurance premium, or MIP, since some lenders offer programs wherein the lender may be able to pay your mortgage insurance for you. This will affect your interest rate by making it slightly higher
Then there’s good ol’ Uncle Sam
Federal government programs exist that help get more people in homes in an affordable way. Agencies such as the Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA), and the U.S. Department of Veterans Affairs (VA) have programs that most lenders participate in.
And the programs they offer have different down payment requirements.
FHA Home Loan program, for example, is an attractive option for first-time buyers and those with less than perfect credit. This program requires a down payment of 3.5 percent, and a parent or relative can be a co-applicant on the loan with you. And since the down payment is less than 20 percent, MIP is required.
Then there’s the USDA Rural Home Loan program which helps if the home you’re looking to buy is in a designated USDA rural area. If you’re otherwise qualified, this program provides up to 100 percent financing eliminating the need for a down payment. Your Realtor© can help you with this by checking to see if the house you’re interested in is in a designated rural areas and, therefore, eligible.
And as a big thank you to those who have served our country, there’s the VA Home Loan program. Here the VA works with lenders to provide veterans with a flexible solution for buying a home. Interest rates are competitive and down payments are optional.
From purchasing with cash and no loan at all to getting a mortgage loan with a 20 percent, 3.7 percent, or even 0 percent downpayment, the options for your new home purchase are there for you.
You don’t need the luck of the Irish to make your housing dreams come true. Get with your Realtor©, find that house, get that loan, and just do it!
Gary Wisenbaker (#garysellsvaldosta), a REALTOR® with Century21 Realty Advisors in Valdosta, can be reached at (912-713-2553) or gwisenbaker@C21realtyadvisors.com