The cost of money, interest rates, is at an all-time low and rents rising rapidly, making it a better option for many people who are looking to move.
There are many things to consider before you decide to buy a home. It is important to be able to live in your home for at least a few years. You also need to have a stable job and a steady income.
The biggest hurdle for many first-time homeowners is the down payment. The rule of thumb is that 20% of the purchase price must be paid as a downpayment to qualify for a mortgage. This works out to $49,500, considering that the median home price is $247,700.
This is enough to make home ownership unattainable for many people. According to the National Association of Realtors, it is likely that first-time buyers now represent only 30 percent of total, compared to a historical average of 40%.
First-time buyers still have options for affordable loans that only require a 3 percent down payment. A mortgage that requires a lower down payment can have its advantages. It’s less likely that you will spend all your liquid savings on the downpayment, which makes it less likely that you become “house poor.” It is especially important to have sufficient cash reserves in case of an emergency or unexpected repair before you move into homeownership.
These are some of the most sought-after low down payment mortgage options.
FHA Loans are available through participating lenders. These mortgages have been the preferred choice for many first-time buyers. The most sought-after FHA loan is the “203(b”) loan. This loan, which is government-insured and allows for a down payment of as low as 3.5 per cent, is readily available from all lenders in the country. A credit score of 500 is required, which is very low. You also need to have a history of paying on time on other loans. Condo purchases come with some restrictions.
Home Possible mortgage: This loan is issued through Freddie Mac and allows for a down payment of between 3 percent and 5 percent. You must use the house as your primary residence. There are no second homes or investment properties. You cannot own or share in any other house. Before you can be approved, you will need to complete an online education program on home ownership.
Conventional 97: This mortgage program is available through participating lenders. It allows only 3 percent down if you apply for a fixed rate loan of less that $417,000. This mortgage program can only be used for single-family homes. You will need to complete a homeownership education course for at least one of your buyers.
Fannie Mae HomeReady loan: This loan can be obtained through Fannie Mae. It requires a minimum of 3% down payment. This loan is unique because it allows non-occupant borrowers to apply. Parents can apply for this mortgage to a child aged 18 or older who is still working on improving his credit score.
Keep this in mind if you are applying for a mortgage with less 20 percent down. You will pay a higher interest rate (between 0.25 and 0.5 percent) as well as the monthly cost of private mortgage insurance. Refinancing your mortgage can eliminate PMI within a few years, provided that your home appreciates.
