The Mortgage Down Payment Dilemma: The Low-Down Payment Option
One of the greatest hurdles facing new home buyers is the down payment. Mortgage down payment requirements vary by lender and the options can be confusing. There are some basic things you should know about this important financial undertaking.
Every loan requires some verification from the borrower that will ensure the loan can be repaid and the financial resources to make those repayments are solid. Down payments on new mortgages will have an impact on the rate you receive. The lower the down payment, the higher the rate and that higher rate in addition to the loan-to- value amount of the mortgage, will increase the payment the borrower is required to make. This mortgage down payment dilemma and the desire to have a low payment option that is both affordable and competitive has kept many potential first time buyers on the sidelines. But there are low down payment options for first time buyers.
While the standard twenty percent down payment is considered the best path to take, there are options available if that qualification proves insurmountable for first time buyers. These buyers should consider exhausting every effort before shopping for a mortgage with a lower down payment. These buyers should also be aware that a conventional, twenty percent down mortgage will offer the best overall rate, more manageable long-term mortgage payments, and may allow the first-time buyer to weather any future financial hiccups.
In most cases, a lower down payment on a mortgage will have significant restrictions. The amount of money that can be financed will be limited to $417,000 or less, even in high market value areas that have higher financing ceilings. In most areas, mortgages less than $417,000 are considered conforming loans while non-conforming loans are for mortgages higher than $417,000, which trigger jumbo mortgage requirements. Conforming loan limits are higher in more expensive areas such as Hawaii or New York City.
The Down Payment Dilemma
Many first time home buyers approach the process in good financial condition. They have secured good jobs with sustainable incomes. These same buyers may be good stewards of their creditworthiness as well. And while both of these qualities are incredibly important to the lender, they also exhibit the borrower’s ability to enter into and sustain a long-term contract lasting decades.
And yet the hurdle of saving enough for a down payment has sidelined many first time buyers. The standard twenty percent down payment will give the borrower the best rate with the most manageable payment options. This will save tens of thousands of dollars in interest paid over the length of the loan. In response to this issue, there are mortgage options available for those who are unable to save this amount of money.
Lower Down Payment Options
VA Loans have a no down payment requirement. While this might seem like a viable option for our veterans, the full amount of the home is financed. This means a larger loan with a higher monthly mortgage payment and over time, tens of thousands of additional interest dollars are paid. VA loans are also accompanied by a funding fee which may be as high as 3.3% of the loan.
Navy Federal Credit Union offers no down payment mortgages for not only veterans but for active duty military and their families. While the funding fees are lower than VA loans, each loan is individually reviewed and is subject to income requirements.
New home buyers might also explore the USDA’s Rural Development Mortgage Program. This incredibly popular program goes beyond financing for farms and may apply to many Central Oregon addresses.
Low down payment loans are often accompanied by Private Mortgage Insurance or PMI. This additional cost is added to the mortgage payment and will remain in place until the equity meets the twenty percent down payment threshold. In some areas, this can occur before enough payments are made on the mortgage as rising home prices can elevate the Loan-to- Value, increasing the hypothetical resale price of the home.
FHA Imperfect Credit History Option (not the actual title of the program) offers a 3.5% down payment but the costs can be high. A 1.75% premium cost on the total mortgage is levied upfront and 0.85% on every $100,000 borrowed. That works out to be about $70 a month in addition to the mortgage payment.
How can we assist you today?
On behalf of The Jones Group @ Sunriver Realty
Nola Horton-Jones, Principal Broker/Realtor | ABR, C-RIS, e-PRO, GREEN, RSPS, CCIM Candidate
Bryce Jones, Broker/Realtor | ABR, CRS, e-PRO, GREEN, GRI, RSPS, SFR
Karen Marcy, Broker/Realtor
The Jones Group @ Sunriver Realty | 57057 Beaver Drive | Sunriver, OR 97707
Mobile: 541-420- 3725 | Mobile: 541-420- 4018 | Mobile: 503-327- 9611 | Fax: 541-593- 5123
Licensed in Oregon