Answering All Your Application Questions For A Home Mortgage
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by: marciafreeman
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Date: Tue, 25 Nov 2008 Time: 2:12 PM
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The fact is that most mortgage lenders do require you to make the 20 percent down payment at the minimum. If you cannot manage to make the 20 percent down payment, you will probably be required to purchase Private Mortgage Insurance or PMI. This insurance typically costs about one half of 1 percent of the purchase price of the home and protects the lender in the event that you should default on 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.
An alternative is to apply for 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. 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 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 means your monthly mortgage payment will be higher. Furthermore, you will still be required to purchase PMI since you were not able to pay the required 20 percent down payment.
Lets review the options. 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: Are you interested in gaining equity as soon as possible and thereby decrease your monthly costs? 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.
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? An FHA loan secured from the government may then be your best course of action.
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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