If you’re a first-time homebuyer, coming up with the down payment can seem insurmountable. However, don’t give up looking at real estate yet, because there are methods available to help people buy a home even with little or nothing saved for a down payment
Private Mortgage Insurance
The first thing to understand is that, without a down payment available, many types of mortgages require something known as Private Mortgage Insurance, or PMI, to obtain a loan. PMI is a program to protect mortgage companies in the event the buyer defaults on the loan.
A down payment provides a buffer between the current market value of the home and its sale price with associated closing costs. Without that buffer, the market value and sale price may be so tight in range that a defaulted loan puts the home underwater, risking a loss for the lender. For this reason, PMI is used to make sure that the lender still has a buffer of its own.
FHA and VA loans are two of the options available to first-time homebuyers. There are also several low down payment conventional loans that small banks and mortgage lenders offer within our area.
With FHA loans, a fee similar to PMI may be required, but you may be able to qualify for a down payment as low as 3.5%. FHA loans are also more lenient in credit score requirements than typical private loans.
VA loans, on the other hand, do not require an extra fee. If you or your spouse is an active member of the military or a veteran, and meets certain other criteria, you may be able to qualify for a VA loan with no down payment.
Lower down payment conventional loans can be as little as 3% down. The loans generally are more strict and require higher credit scores, strong employment history and lower debt to income ratios than FHA and VA loans.
Private Loan Programs
If you are not able to meet the criteria necessary to qualify for one of the government loan programs, there are also private programs you may want to consider. These include Fannie Mae’s HomeReady® and Freddie Mac’s Home Possible® programs. Each program allows down payments as low as 3 percent and permits those funds to come from gifts or other resources. Each Requires a PMI that can be ended once 20 percent home equity and certain other criteria have been achieved.
As you look for the right path to purchasing your home, the experienced real estate agents of the Ian Perler Team are here to help. We can assist you in navigating your options and pinpointing the home most fitting for your current circumstances. Let us help you find your dream home in Philly, where you can soak in the nightlife, dine at a wide variety of eateries and live the life of your dreams.