Home Mortgage Questions and Answers Guaranteed
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by: marciafreeman
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For most people, raising the money for the 20 percent down payment that is typically paid on the purchase of a home doesnt come easy. The good news is that there are quite a few low down payment mortgages available nowadays. But when deciding how much to put down, you should consider the following: Is 20 percent the standard down payment?
The fact is that most mortgage lenders do require you to make the 20 percent down payment at the minimum. If you put down less than 20 percent, most lenders will require you buy Private Mortgage Insurance (PMI). The cost of PMI is usually equivalent to one half of 1 percent of the selling price of the property, and is intended to protect the mortgage company if you are unable to pay back the loan. You will therefore end up avoiding having to pay the PMI costs...and thereby save more money...if you can manage to raise the 20 percent down payment.
What if you simply cannot raise the 20 required down payment? If you are unable to make the 20 percent down payment, purchasing PMI may be your next best option. And once you reach 22 percent equity in your home (or sometimes 20 percent equity with a good payment history), you can get your lender to cancel the insurance.
Another option available to you is securing an 80/10/10 loan. It enables you to avoid PMI by financing half of the required 20 percent down payment with a second mortgage. 80/10/10 loans work on the principle that the bulk of the selling price of the home is paid for through the first mortgage, with 10 percent being paid off with a down payment, and the remaining 10 percent being paid off with another mortgage. You may also pay off the 20 percent down payment with an FHA loan that you secure from the government. Again, you will have to pay for insurance, but you may qualify with a down payment as little as 3 percent.
What about the possibility of purchasing your home without having to make any down payment at all? There are actually some financing plans available that will allow you to pay for the full cost of the home without having to pay any down payment. The disadvantage of this type of financing is that you are likely to be charged a higher interest rate than that of a standard mortgage. This will of course result in higher monthly payments for you. Also, because you didnt make the standard 20 percent down payment, you will have to pay PMI.
Let us look into other payment alternatives available to you. When trying to determine how much to put into the down payment, you should explore your various options in order to find a plan that will best suit your circumstances.
Q: Would you prefer getting instant equity in your home and lowering your monthly mortgage payment? If so, paying the 20 percent down payment is your best alternative.
Do you want to save on paying PMI costs but are unable to raise the 20 percent down payment? An 80/10/10 loan may then be your best option.
Q: Can you only come up with a 3 percent or 5 percent down payment and dont want to wait to buy a home because you are concerned about rising house prices? A: Maybe a government insured FHA loan would be a good answer.
Q: Do you have no savings at all but are so eager to enter the real estate market immediately that you are willing to pay the extra costs involved in a no money down mortgage? You may be able to do this if you are fully confident in your ability to make the payments and to secure a better mortgage plan later on down the line. The important thing is to evaluate your own situation carefully before you decide how much to put down on a home.
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