Many people, especially first time buyers are discouraged from entering the real estate market because they can’t come up with 20% of the purchase price for a down payment. Conventional wisdom has always held that you put down that amount so you don’t have to pay private mortgage insurance (PMI). These days, there are many options so that you don’t have to have to pay that much money up front, and in some cases, don’t have to put down any money at all.
There are now a variety of loan programs available that allow buyers to bring less money to the table. One of the most popular of these recently is the 80/15/5 loan. This type of loan allows for a large loan of 80% of the purchase price and a small loan for 15% of the purchase price. The 5% is the amount the buyer pays up front. This makes it look like you have 20% down so you don’t have PMI on the loan. The smaller 15% loan typically has a higher interest rate so many buyers choose to refinance once they have 20% equity in the home so they can get rid of the higher rate loan and not have to pay PMI.
If you qualify, another way not to have to bring as much money to the closing table is by getting an Federal Housing Administration (FHA) or Veterans Administration (VA) loan. These loans typically have lower money down requirements like 5 or 10 percent of the purchase price but they can come with more stringent inspection requirements or other requirements to qualify.
First time buyers can also apply for grants and financial assistance that can help with down payments. There are many of these programs out there so make sure to ask your lender if you qualify.
Finally, many lenders have come up with additional loan products to help buyers. These can vary by lender so you should talk with your lender to see all of the options available to you. It is important to have all of these conversations with your lender before you start looking for homes so you know realistically how much home you can afford. This helps steer your home search and helps you to be ready to go in this fast paced real estate market so you can be competitive and secure the home of your dreams.
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