Questions You Must Ask Before Applying For A Home Mortgage
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by: marciafreeman
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Its not always easy to save up enough to make the traditional 20 percent down payment on a home. 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?
In order to qualify for a conventional mortgage, lenders usually require a minimum down payment of 20 percent. 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. Your overall mortgage costs will therefore be less if you come up with 20 percent down and can avoid having to pay PMI.
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. The good news is that you may be able to get the mortgage lender to cancel PMI when you attain 22 percent equity in your home, or even 20 percent equity if you have a good record of making payments.
Another option available to you is securing an 80/10/10 loan. This type of loan will save you from having to purchase PMI by paying half of the 20 percent down payment with another mortgage plan. The way it works is that 80 percent of the purchase price of a home is financed through a first mortgage, 10 percent through a second mortgage, with the final 10 percent coming from the down payment. Or you can apply for a government insured FHA loan. Again, you will have to pay for insurance, but you may qualify with a down payment as little as 3 percent.
What about putting down no money 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 downside is that these types of financing plans will entail much higher interest rates than typical mortgage arrangements. This will of course result in higher monthly payments for you. Furthermore, you will still be required to purchase PMI since you were not able to pay the required 20 percent down payment.
Let us look into other payment alternatives available to you. When deciding how much to put down on a home, its important to know what your options are so you can decide what works best for you.
Q: Would you prefer getting instant equity in your home and lowering your monthly mortgage payment? A: Then putting down 20 percent may be best for you.
Q: Are you unable to come up with a 20 percent down payment but want to avoid paying PMI? An 80/10/10 loan may then be your best option.
Do you want to buy a home as soon as possible in order to avoid the rising costs of home purchase but can only afford a 3 to 5 percent down payment? A: Maybe a government insured FHA loan would be a good answer.
Are you unable to raise enough money for any down payment but are willing to incur the extra expense of a no down payment mortgage plan? 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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