The following may be apparent to some. However, the current subprime crisis proves that it hasn’t been for all:
But saving money for a down payment might soon be the newest trend revisited in mortgage financing the purchase of a home. Read the rest of this entry »
Many first-time buyers are resorting to unusual extremes to scrape together money for a down payment and qualify for a mortgage, a USA Today special report details.
Read the rest of this entry »
Experts can debate for hours about the direction of the housing market. But there’s little to not arguing over this fact:
It’s always worth your while to start saving for a down payment. Especially now. Why? Let’s explore a few reasons …
better suited for a fast appreciating market where your home quickly generates equity to compensate for your small or missing initial stake.To continue reading this Realty Times article, click here.
Coming up with 20 percent of a home’s price for the down payment can be a steep hurdle for a prospective home buyer - and can delay a home purchase for years.
After all, buyers who can’t put down 20 percent are generally required to buy mortgage insurance, which can come to as much as another $250 a month on top of the mortgage payment.
To help low- and moderate-income buyers in Chicago’s South Side avoid this extra cost, the Chicago Sun-Times reports that Marquette Bank and South Side Community Federal Credit Union have started a new program that uses a second mortgage for a portion of the down payment.
Payments on the 2nd mortgage would be about half the cost of mortgage insurance, and the interest is tax deductible, explained Mike Mangin, executive vice president of retail lending for Marquette Bank, which has nine of its 25 branches on Chicago’s South Side.
“This will be an alternative for some people out in the subprime (or bad credit mortgage) market really getting whacked with loans,” Mangin said.
The program, which functions similarly to piggyback loans, is offered to members of the credit union. Membership is limited to those who live, work, worship, attend school or participate in an association in a specific area defined by the city.
The program combines the first mortgage originated by Marquette Bank with the second mortgages originated by South Side Community Federal.
The first mortgage will amount to no more than 80 percent of the total value of the property being purchased, combined with a second mortgage in the amount of the difference between the borrower’s down payment and the first mortgage.
As part of the program, Marquette will offer a closing cost credit of up to $1,000, plus up to $3,000 in grants for down payment assistance. South Side Community Federal requires buyers to receive home buyer education and counseling, and show they have enough income to cover home payments.
Similar partnerships have been formed between banks and churches, said Paul Smith, senior counsel for the regulatory policy for the American Bankers Association. But Smith said he has never heard of a bank and credit union joining for this type of program.
“For people who qualify, I think it would be terrific,” Smith said. He said one of the problems in the affordable housing market is that so many people have trouble paying for closing costs, much less 20 percent down.
Smith said the credit union will have to choose its buyers carefully, since a second mortgage loan generally entails greater risk to lenders.
The home mortgage process is a long, winding road. Fortunately, it has a great ending; Your own, beautiful house.
One of the bumps along the way, however, can be understanding the importance of your down payment. How much should you set aside? What options are there?
We hope these questions and answers shed some financial light on the subject:
- Would you prefer getting instant equity in your home and lowering your monthly mortgage payment? Then putting down 20 percent may be best.
- Are you unable to come up with a 20 percent down payment but want to avoid paying PMI? You may wish to consider a 80/10/10 piggyback home loan.
- Can you only come up with a 3 percent or 5 percent down payment and don’t want to wait to buy a home because you are concerned about rising house prices? Perhaps a government-insured FHA loan would be a good answer.
- 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? Provided you are able to handle the required payments and are confident your financial situation will enable you to mortgage refinance with better terms in the future, it could be the way to go.
The important thing is to evaluate your circumstances carefully before you decide how much to put down on a home. We can help.
Investing in real estate can, under the right circumstances, be quite profitable.
Whether you plan to flip it (a term for buying a property, fixing it up, then selling for a profit) or rent it out, real estate is a way to expand your cash flow, according too Quicken Loans.
But even when you know what kind of property you want to buy and how you want to manage it, you have to find a way to finance the purchase. Granted, there are many no down payment mortgage options available, but if you opt to put a down payment on the property, you have to know where to come up with the cash.
You also need some cash to close on the property, then you have to be able to make the monthly payments on the mortgage loan.
So where do you start?
You could start with your savings accounts, but wisdom says your savings are better left where they are right now. Even if you use some of your savings, you never want to dip too deep into that pool, or you risk losing the financial cushion you’ve worked so hard for. So where else can you look?
One smart place to get the money would be to tap into your home equity. If you’ve built up some equity in your primary home, you can get a home equity loan that will give you the cash to use as a down payment.
There are several advantages to home equity loans:
Now that you’ve found a way to finance the down payment, how do you finance the rest of the property? A home equity loan allowed you to extract the money - now how to you spend it wisely?
There are several loans available that are good for the purchase of an investment property. Some loans allow you to state your income, meaning that you don’t have to document your income. It makes the mortgage process easier because there is less paperwork, but you need to have a good credit score to do qualify for no doc loans.
There are option ARMs that allow a significantly lower monthly payment as well. In fact, option ARMs give you just that - options. You can choose a 30-year traditional mortgage payment, a 15-year payment, an interest-only payment or a minimum payment, where you pay less than the interest due for that month.
If you decide to go this route, look for an option ARM that offers a fixed interest rate, one that doesn’t allow you to defer too much interest and doesn’t force you into a prepayment penalty.
Coming up with a down payment to buy an investment property doesn’t have to be hard, especially when you don’t want to dip into your savings. Neither does financing the rest of the property. Speak to an experienced mortgage broker to find out which mortgage best fits your individual situation and investment goals.
We know you may have enough to worry about when it comes to finding money for a typical 20% down payment.
But if you wish to qualify for a mortgage as an attractive candidate, you’ll also want to consider where these funds are coming from. Here’s why:
Assurance of sufficient assets
The lender is loaning you a significant amount of money for your home purchase. In order to stay in business, the mortgage lender muts be repaid for that loan, and will do everything possible to ensure that you intend to repay it. Knowing where the money for your down payment is coming from helps reassure this professional that you can afford to make all of the required payments.
More obligation of repayment
When you invest a significant sum of your own money in a down payment, you are less likely to default on your loan. Lending Tree makes the point that if the lender allowed you to use your credit card, for example, it wouldn’t really be “your” money and you might not feel as obligated to repay it.
Less risk for the lender
The amount of your down payment also matters. If you’re putting down 50 percent, the lender is less likely to be concerned about the source of the funds (even if half of the money came from a gift) because you are investing a sizeable amount into the home. With so much invested, you are less likely to default on the home loan.
On the other hand, if you put down just a small percentage of the home purchase price, the lender will be concerned about your level of commitment to the deal and will want to be reassured that the money is your own.
When you’re financing your home, expect the lender to ask all sorts of questions about where the down payment money is coming from. But don’t worry - this is a standard part of the home buying process.
In light of continually high home prices, many hopeful owners might have trouble coming up with the status quo of 20 percent on a down payment these days.
Don’t worry, though. Many lenders are aware of this conundrum. As a result of it, they offer non-traditional home loans or second mortgages to cover the cost of a down payment. Let’s delve more deeply into them …
No-down-payment mortgage
With a no-down-payment mortgage, 100 percent of the purchase price of a home is financed with a single home loan. The advantage, of course, is that you don’t need to wait to save thousands for a down payment as prices around the nation escalate.
The disadvantage, according to Lendingtree.com, is that you are likely to be charged a higher interest rate than you would with a standard mortgage. Therefore, your monthly mortgage payment will be higher. Moreover, because you didn’t make the standard 20 percent down payment, you will have to pay private mortgage insurance (PMI) to protect the lender in the event that you default on your loan.
Second mortgage
Another option for buying a home without a down payment is a second mortgage, often called a piggyback loan. If you use an 80/20 loan, 80 percent of the purchase price can be financed through a first mortgage and the remaining 20 percent comes from a second mortgage.
The advantage of this type of loan is that you don’t have to pay private mortgage insurance. The disadvantage is that second mortgages typically carry a higher interest rate than first. You must therefore assess whether you are better off paying for the insurance or the additional carrying costs.
Before choosing a no-down-payment loan, you should consider both your own personal situation and the state of the housing market. When housing prices are escalating, it may make sense to jump into the market as soon as possible.
However, the reverse is also true. If you were to choose a no-down-payment mortgage and the price of houses were to drop in value, you could find yourself in the position of owing more for your home than it’s potential resale value. Weigh all of the factors carefully and discuss with your lender if it’s the right option for you.