The Scoop on Down Payments:
They Don't Need to be 20%
It seems like a lifetime ago, but in actuality, it’s only been (approximately) 8 years since our nation’s housing crisis began …
Since that time, there has been a tightening of Mortgage Underwriting Standards. Much needed, as it’s obvious that the underwriting and lending standards previous to the crisis were way too lax.
New safety guards and regulations meant to protect and help Borrowers have now been implemented. Much has been written about them. All you have to do is a simple online search utilizing any of these terms (or many others):
- Home Buying
- Mortgage pre-approval requirements
- Documentation Needed for Mortgage Application
- Down payments
... you’ll reap page after page of articles and editorials alerting and educating current and potential homeowners and mortgage borrowers to the changes that have occurred as a result of the crisis.
Also addressed are the pros and cons of the changes and how homeowners and borrowers can and should utilize the new standards to their benefit. But it should be noted that the one thing in financing left largely unchanged throughout and after the crisis is: DOWNPAYMENT.
So if you’ve been hearing/reading that you need a full 20% down in order to buy a home? That’s wrong.
Yes, it’s true that the ABC’s of financially building and saving a Down Payment is vastly more challenging within the current economy. But the actual percentages surrounding Down Payment requirements for financing/borrowing have remained vastly unchanged.
Both prior to the housing crisis and currently, the following were/are available:
- 3.5% Down Payment FHA loans
- 0% Down Payment VA loans (Qualified Veterans)
- 3% Down Payment Conventional loans
- 0% Down Payment USDA loans (Eligible Applicants – Eligible Locations)
- Many States/local municipalities have Grants or resources available for Borrowers in need of Down Payment Funds
It should be noted that the topic and details surrounding Down Payments are hugely important. So you’d think that every effort would be made to write articles or report factual information, right?
Yet misleading or inaccurate information remains readily available. Such was the case with a radio advertisement I heard this weekend.
Hearing incorrect Down Payment info conveyed in that radio message about made my head spin. I felt compelled to take action, as bad info is keeping too many from their home buying dream.
So what is the single most important FACT hopeful Home Buyers need to know about current Down Payment requirements? It’s simple …
You DON’T need 20% Down!
What's also a fact:
- A new Home Buyer/Borrower may be required to hold Private Mortgage Insurance if putting less than 20% down
- That Private Mortgage Insurance does NOT keep them from buying. (The obtaining of Mortgage Insurance is almost a foregone conclusion for qualified Buyers)
- Private Mortgage Insurance is mandatory on FHA Government-Insured Loans
But it’s also true that: Down Payment Funds can come from many allowed sources.
Those sources include:
- Gifts from relatives
- Loans from Retirement Funds
- Life Insurance Policies with Cash Value
- Traditional Sources of Savings, Checking, Mutual Funds, Money Market Accounts
Documentable Bonuses from Employers
Are you a hopeful Home Buyer or potential Borrower?
If you’re hearing from someone or reading somewhere that you’re required to have a 20% Down Payment to buy or finance a home? Keep moving. That’s not true. Options and requirements needed for a lower Down Payment may exist elsewhere.
Don’t give up! Seek additional advice regarding your needed Down Payment. Exhaust all your options and information resources.
Try talking with another Lender. Get a second opinion. Because it’s also a FACT that financing options can vary between Lenders. Mortgage Programs, Mortgage Program availability, options, requirements can also change and evolve.
And if you still receive a negative answer? Don’t get discouraged. Any setback may be just that, a setback. And only temporary, for all the reasons mentioned above ...
* Watch for my upcoming post on Closing Costs ...
* Hoping to Buy or Refinance a home in Chicago or elsewhere in the Chicagoland area? Contact me! I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
I can be easily found at:
Mortgage Originator - NMLS #216987 - IL Lic. #031.0006220 - WI Licensed
American Portfolio Mortgage Corp.