The “20% down payment” myth

Jennifer Y. Ross
Published on July 15, 2019

The “20% down payment” myth

Money management guru Dave Ramsey advises that “The ideal way to buy a house is the 100 percent down plan—pay cash for the whole house.” Wouldn’t it be nice if all of us could participate in that plan?

The fact is, in February of this year, 77 percent of American home buyers used a mortgage to purchase their homes, according to RealtyTrac.com.

With a mortgage, however, comes the need for closing costs and cash upfront for a down payment. Many would-be homeowners hesitate applying for a mortgage, thinking they need 20 percent of a home’s purchase price as a down payment on the loan.

If you’re among them, we have good news for you: you can buy a home with zero down payment (if you qualify) or with a very-low down payment–3.5 percent in many cases.

Let’s take a look at some of the alternatives to the 20 percent down payment.

There are several ways to buy a home with NO down payment

Did you or your spouse serve our country in the military? If so, you may qualify for a loan guarantee from the U.S. Department of Veterans Affairs (the VA).

Because the VA guarantees to repay a portion of the mortgage should the borrower default, lenders offer attractive rates and terms and a zero down payment loan.

The VA-backed loan is available to qualifying veterans, those currently serving and surviving spouses. Learn all the details at VA.gov.

USDA

The United States Department of Agriculture (USDA) offers several home loan options for low- or moderate-income borrowers. Neither require a down payment and the “catch” is that the home you purchase must be in a qualifying region, typically rural.

The home must also be “modest” for the area and generally excludes homes with swimming pools and other high-end features.

But, it’s an ideal way to become a homeowner, if you qualify. Learn more about these programs online at USDA.gov.

 

Use down payment assistance programs

If you don’t qualify for the zero down programs, you may want to look into some of the many down payment assistance programs available.

You’ll find many are offered by federal and state government entities as well as local municipalities.

Federal programs include help for teachers, fire fighters, medical personnel and police officers. There are programs for Native Americans, Alaskans and Hawaiians as well.

We’re happy to give you information on regional programs – reach out for more information.

Consider programs with a low-down payment requirement

If you don’t qualify for one of the zero down payment programs, pursue a mortgage through one of the programs with low down payments.

FHA

Lenders are far more amenable to loan money to borrowers with less-than stellar credit when the government guarantees the repayment.

The Federal Housing Administration (FHA), a department within the U.S. Department of Housing and Urban Development (HUD), a loan program you’ll want to pursue if this sounds attractive to you.

Although the program has experienced several changes over the years, it’s still the most widely used mortgage program by first-time home buyers.

The down payment requirement for an FHA loan varies, from 3.5 percent to 10 percent of the loan amount. Which you’ll pay, depends on your financial situation and, naturally, each lender’s requirements.

The biggest drawback of the FHA mortgage program is that you’ll pay for being what lenders call “high risk” or “sub-prime” borrowers. This payment is in the form of a mortgage insurance premium (MIP) – an extra payment tacked onto your mortgage payment each month.

In the past, it was possible to get rid of the MIP when you reached a certain amount of equity. That changed in recent years and now the insurance remains for the life of the loan, if you pay less than 10 percent down when you purchase.

If you pay more than 10 percent down, MIP is cancellable in 11 years.

With a conventional loan, on the other hand, you can dump the MIP when you reach 20 percent equity in the home.

Fannie Mae and Freddy Mac

Fannie Mae and Freddie Mac started backing loans with a 3 percent down payment back in 2014 and 2015.

To snag one of these loans, you’ll need to purchase private mortgage insurance, your credit score will need to be at least 620 and you’ll need to agree to participate in home ownership counseling classes.

Questions? Feel free to reach out to us. We’re happy to help.

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Introduction to Jennifer Y. Ross & The Westchester Living Team at COMPASS

Jennifer comes from Platinum Drive to Compass as an experienced agent. She epitomized Platinum Drive Realty’s motto “I grew up here. I live here. I sell homes here” and she is known for providing each of her clients with an exceptional experience guided by her expert local knowledge. She works tirelessly to ensure each of her clients has a professional, enjoyable and successful Westchester community & home buying search or selling experience. She often remains very friendly with her clients and welcomes the opportunity to be an ongoing resource as they settle into Westchester Living. Every step she takes will embody her core principals; integrity can never be compromised, clients’ interests always come first and character, commitment, and passion truly matter. For her buyer clients, Jennifer looks forward to the opportunity of being “Your NYC to Westchester” guide and real estate broker. For her seller clients, Jennifer is proficient at implementing an aggressive marketing strategy in order to obtain the best price possible in a highly efficient and seamless manner. Jennifer thoroughly enjoys assisting buyer clients in navigating the landscape of the Westchester residential real estate market. She is skilled at enabling clients to define where they see opportunity & facilitating the process from initial search through closing. Jennifer was awarded the Platinum Drive Star Award for Outstanding Performance in Sales & Client Services in 2014 & Platinum Drive Realty’s Superstar Award for Excellence in Sales and Client Services 2015 & 2016 for her outstanding performance in sales and client service. In addition to her passion for local real estate, Jennifer has a firsthand understanding of home renovation and new construction. Upon moving from NYC to Scarsdale, she and her husband performed an extensive renovation on their first home. After completion, they moved onto their second project in Larchmont, a full house renovation and expansion. More recently she is active with local developers who specialize in new home construction, home expansions and renovations. Jennifer has the ability to understand a home’s full potential and can help clients find or create their dream home. Jennifer was the Manager of Platinum Drive Realty’s Larchmont Office. Jennifer was raised in Scarsdale. After graduating from Scarsdale High School, Jennifer received a BA in Child Study & Sociology from Tufts University and an MA in Language & Literacy from New York University. Jennifer currently lives in Larchmont with her husband, Michael, and their three sons, Braden, Devon & Zane. She specializes in communities in Southern Westchester with a concentrated focus on the Sound Shore Communities of Larchmont, Mamaroneck, Rye Neck, Rye, New Rochelle as well as her hometown of Scarsdale. Prior to real estate, Jennifer was a teacher in the Mamaroneck Public Schools. Jennifer has a deep understanding of the local school systems and the needs of young families.

Professional Associations & Accreditation

Jennifer is a Licensed Associate Real Estate Broker & has her Accredited Buyer Representative designation (ABR) and her Seller Representative Specialist designation (SRS).  Jennifer is a member of the Hudson Gateway Association of Realtors & the National Association of Realtors. Jennifer’s

Website: westchesterliving.house

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