BUY A HOME WITH A LOW DOWN PAYMENT MORTGAGE
How to buy a home with a low down payment mortgage.
|Owning a home is part of the American dream. And, it's proven to be an excellent long-term investment, as well. With mortgage interest rates at historic lows, anyone who is paying rent can probably afford to buy their own home or condominium. Some prospective buyers still think they need a big down payment of 20 or 25 percent. But that's not true anymore. Let's look at some of the ways to buy a home with a low down payment mortgage.
Take advantage of the low-down payment loan programs
VA offers no-down-payment home loans to qualified veterans. FHA requires only a three to 5 percent down payment. Fannie Mae offers its Flex 97 plan with only 3 percent down, but you will need good income and excellent credit. PMI (private mortgage insurance) on home loans with less than 20 percent down will add to your monthly payment.
Get 100 percent financing
With good income and great credit, conventional lenders will provide 100 percent financing for your home purchase. You can even get the closing costs paid by the seller! Yes, the interest rate is a bit higher with this program. But, if you're strapped for cash 100 percent financing will allow you to buy a home with a low down payment mortgage.
Get a first and a second mortgage
If your lender can arrange a first and a second mortage, you can buy a home with a low down payment. This will also give you the option of paying off the second if you come into some extra cash, without all the usual costs of a refinance.
Ask the seller to pay your closing costs
Lenders will allow the seller to credit the buyer up to 5 percent of the purchase price for non-recurring closing costs. These are costs that are paid on a one-time basis such as escrow, title, and transfer fees. Remember that you will probably pay a little more for the home to compensate the seller for paying your closing costs. But it's better to overpay a little than to not get into a home at all!
Ask the lender to pay your closing costs
Lenders make a fee on each loan they make. If you take out a loan at a higher than market interest rate, the lender will make extra up-front fees that can be used to pay your closing costs.
Secure a no-point, no-fee loan
This will lower your closing costs. But, keep in mind that there's a trade off between points and the mortgage interest rate. The lower the points, the higher the interest rate, and the higher the monthly payment.
Finance your closing costs
Some lenders will permit you to finance part or all of your closing costs. They may roll them into the loan or you may put them on a credit card.
Close late in the month to defer your closing costs
Lenders collect interest for the remainder of the month when you close. If there are only a few days left in the month, you will only pay a few days of interest and reduce the cash needed to close on your home.
Negotiate with the service providers
Many of the costs of buying a home are provided by outside service providers. Be sure their fees are competitive. Check with the appraiser, the escrow company and the title company to make sure their fees are in line.
Get a gift or make a shared equity purchase
Most lenders will permit a relative to gift you the money to cover closing costs, or even the down payment. Or, perhaps you have a friend or relative who would like to invest in the property with you. Typically, they would make the down payment, you would make the monthly payments and the parties would split any gain in equity when the property is sold. This is called a shared equity purchase.
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