20% Down for Conventional Financing or No Deal?
When envisioning the American Dream of financing your next home; how often have you been told, “You must have 20% down in order to qualify for a Conventional home loan?”
Q: Why is having 20% so important?
A: With a 20% down payment, Private Mortgage Insurance (PMI) would be eliminated.
Note: Private Mortgage Insurance (PMI), protects the lender in case you end up in foreclosure.
How to buy a Home with less than 20% down
This loan program allows Lenders to confidently serve today’s market of creditworthy, low- to moderate-income borrowers, with expanded eligibility for financing homes in low-income communities. There is no government appraisal, 30-year fixed rate, and all funds can be gifted! No income limits or requirements and allows for more eligible properties than that of a government loan.
Qualities of a Qualified 3% HomeReady Buyer
- Have low to moderate income
- Are first-time or repeat homebuyers
- Have limited cash for down payment
- Have a credit score ≥ 620; borrowers with credit scores ≥ 680 may get even better pricing
- Have supplemental boarder or rental income
- Are looking to purchase or refinance
Note: At least one borrower must complete a pre-purchase home-buyer education and counseling program in accordance with Fannie Mae prior to note date.
Information provided by Fannie Mae
Take a look at these: DID YOU KNOW?
More times than not it becomes a smarter strategy to not put 20% down but 3% or 5%. This will free up cash to eliminate debts and free up hundreds of dollars per month. The overall cash output per month for this new home can be less than the cash flow going out on your current monthly debts. The total bills, including the new mortgage payment, can be less than what you’re currently spending on your mortgage and debt load.
Did you know you can put less than 20% down and the PMI goes away on a conventional mortgage? With 5% down PMI would automatically fall off in 84 months. 10% down PMI will fall off in 60 months and 15% down, about 36 months. Yep, it goes away.
Check out this example:
Did you know a buyer can put less than 20% down and not have PMI?
Example: if you put 5% down and your monthly PMI amount let’s say is $100 a month, this would total $8,400 before it falls off automatically. Remember 84 months? However, you can buy out of this PMI at about a 50% discount. The discounted rate from $8,400 now becomes cheaper, around $4,200. You come to closing with this additional $4,200 and no longer have the monthly PMI, saving $4,200 or $100 a month on your payment.
Working with a team to find you the right options for your dream home are critical. Use a Realtor with a good understanding of the buying process and loan options, AND a reputable and knowledgeable lender who is willing to find you the right mortgage products to make that dream a reality.
Information provided by Victor Bals Team of Huron Valley Financial
734-417-2115 | Vic@HVFLoans.com | www.HVFLoans.com