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Traditionally,
the biggest obstacle to buying a home with mortgage financing is obtaining
the down payment funds. In the past, mortgage lenders required at least 20% down. Today, Goverment Insurance programs and Private Mortgage Insurance make low down payments possible. In some instances, local and state agencies will provide down payment assistance in the form of a loan or grant. Qualifying
For Low Down Payment
Do not assume that you can obtain a low down payment loan.
Lower down payment loans may require stricter credit and income
requirements for your application file.
To be considered for a low down payment loan, you generally need to have:
Closing costs, or settlement costs, are paid when the home buyer and the seller meet to exchange the necessary papers for the house to be legally transferred. On the average, closing costs run approximately 2% to 3% of the house price. This percentage may vary, depending on where you live.
Low
Down Payments Possible
Simply put,
mortgage insurance protects the mortgage lender against financial loss if
a homeowner stops making mortgage payments. Lenders usually require
insurance on low down payment loans for protection in the event that the
homeowner fails to make his or her payments. When a homeowner fails to
make the mortgage payments, a default occurs and the home goes into
foreclosure. Both the homeowner and the mortgage insurer lose in a
foreclosure. The homeowner loses the house and all of the money put into
it. The mortgage insurer will then have to pay the lender's claim on the
defaulted loan. For this reason,
it is crucial that the family buying the home can really afford it -- not
only at the time it is purchased, - but throughout the time period of the
loan. Although the cost
of the mortgage insurance is paid by the home buyer, or borrower, the
mortgage insurer works directly with the lender. Mortgage insurance is
available to commercial banks, savings & loans and mortgage bankers,
all of whom offer mortgage loans to home buyers. Remember that mortgage insurance is not the same as credit life insurance, also called mortgage life insurance. This type of policy repays an outstanding mortgage balance upon the death of the person who took out the insurance policy. Down
Payment Loans or Gifts
Can I obtain a loan or gift for my down payment?Yes, but you can
not use this strategy for all loan programs. The most popular program for
this tactic is the Federal Housing Administration or FHA. FHA allows 100%
gift funds for your down payment. The gift can be for any relative or can
be collected through new innovative programs, like the Bridal Registry
where couples receive money into a account that can be used for the down
payment. Another popular tactic, which can be used in a wider range of programs, is to borrow from your 401K program. If you have a 401K program with your employer, you can withdraw without a penalty for your downpayment and pay it back over a specified period. There are some drawbacks, the payment will be used in qualifying and your 401K account will not continue to grow as fast. Even with these drawbacks, it is often a smart move if this is your only option.
Down
Payment Assistance
Many local and
state agencies run bond programs to generate funds to help individuals and
families with a down payment. Contrary to public thinking, these bond
issues are not a type of welfare. The government knows that it can be
tough to buy that first home, especially on a limited income. Most agencies are
income sensitive, but you may be surprised by the high level of acceptable
income. The income level is especially high if you have children or
dependents. Most agencies also have purchase limits, but they are adjusted
to the income qualifications level. If you are able
to obtain down payment assistance, you may receive a lower interest rate.
The drawback is that it often takes quite a bit of work with extra
paperwork and mandatory education classes. Our advice, find a realtor or
mortgage lender who is familiar with both the local and state agencies and
their policies State
Housing and Finance Authorities
Maryland
45 Calvert Street Annapolis, MD 21401 (301) 974-2176 Virginia Virginia Housing Development Authority 601 S. Belvedere Street Richmond, VA 23220 (804) 782-1986 West Virginia West Virginia Housing Development Fund 814 Virginia Street East Charleston, WV 25301 (304)
345-6475 |