Twenty percent for a down payment may not seem daunting until you realize that for a $200,000 house, you’d need to come up with $40,000 in cold hard cash! Not a lot of people I know have that kind of money just laying around - especially first time home buyers. But hope is not all lost.
There are several options to drop, reduce, and/or come up with your down payment.
The size of your required down payment varies by the loan program you use. Each program has different requirements, pricing, and guidelines - making it important for you to choose the one that fits your particular situation.
My favorite loan program is available to a select group of very special people. The VA loan program is for active duty and military veterans. This program will provide the borrower with 100 percent financing, meaning you don’t have to pay a penny towards a down payment. This is my favorite loan because it has the ability to get some of the lowest interest rates, the seller can pay the borrower’s closing costs, and there is no required private mortgage insurance. This loan can literally save the borrower thousands of dollars a year.
We also like USDA loans because they too offer 100 percent financing, but they come with their own unique guidelines and requirements. For example, to qualify, you have to buy a home in a rural area as defined by a map provided by USDA.gov.
Another great option is the FHA loan. With this loan you are required to put down as little as 3.5 percent. That’s a much smaller pill to swallow than paying 20 percent! This loan is for people who can be classified as “first-time homebuyers”, and it too has its own unique standards. One of the biggest drawbacks to the FHA loan program is the requirement to pay a monthly mortgage insurance for the life of the loan.
A fourth option is the conventional loan program. This is where people get the idea that you need to put 20 percent down in order to buy a home. The truth is that with the conventional program you can actually put down as little as 5 percent, but you’ll need to put down at least 20 percent to avoid the required private mortgage insurance.
Unfortunately not everyone can qualify for a VA loan and not everyone wants to live in a rural area. Many people then, will likely need to come up with some money for a down payment, and they may not be aware that you can get that money through a variety of ways.
Gifts - Many loan programs allow borrowers to receive funds from a family member in the form of a gift. There are limitations on this depending on the program and the percent of the down payment being gifted. It also needs to be documented using a “paper trail” to trace who, when, and how much money was given.
Retirement accounts - it’s often possible to borrow funds from a 401k or IRA. Obviously there may be tax penalties, interest charges, and it will likely count against your debt-to-income ratio. But many borrowers find this a good place to find money they’ve already stored away.
Savings - You can use any money that you have saved. One of the issues here is where the money came from. The term “mattress money” is used to describe funds that a borrower pulls from a location that can’t be traced such as a safe or shoe box. To avoid complications in the loan process, it is smart to keep money in a bank account where it is easily traced when used for a down payment.
When it comes to getting financing for a house, down payments can be a rough obstacle, especially for first time homebuyers. Hopefully you understand now that there are many different loan programs and acceptable sources for down payments. Now you just have to choose the right options and move forward.
Our country is extremely grateful for the service provided by our military men and women. As a small token of all our appreciation, the government has a loan program for United States Military Veterans.
Veterans who take advantage of this loan program get the benefits of no down payments, low interest rates, seller paid closing costs, and many others.
The sad truth is, everything costs money and the VA Loan is no exception. In order for the loan to continue to be a zero down loan and free from mortgage insurance, the government and tax payers have to pay for that cost.
In order to offset that cost to tax payers, there is a small fee for the loan. The great thing about the fee is that it not only ensures the continuation of the VA Loan program, but it can be rolled into the loan itself resulting in the Veteran purchasing a home with no upfront money.
There are also exceptions to paying the fee. The government has decided that if a veteran has a service connected disability of 10% or more, they are not required to pay the fee. It’s just one more way of saying “thank you.”
So how much of a fee is there? It depends on three things; your type of service and time in that service, if you are putting any money down, and if you have used your VA benefit previously. It starts as high as 3.3% for a Veteran using the benefit more than once, and goes as low 1.25% when a Veteran puts at least 10% down.
Even though it’s not a lot of fun to have to pay a funding fee, it’s still better than using a conventional or FHA loan with their associated fees and generally higher interest rates. Plus, by purchasing a home with your VA Loan and paying the funding fee, you’re keeping the program alive and ensuring that other Veterans will be able to use the benefit in the future.
Monday marks 85 years since the birth of one of this nation’s most famous civil rights leaders. Martin Luther King Jr. helped pave the way for equality in legal rights.
MLK day is an opportunity to remind us of the ideals, for which King, lost his life trying to achieve.
As a company, we’re happy to use this federal holiday to remind us all to be little more open minded and to take care of the needy. We don’t want anyone to get the wrong idea when we announce that we’re open for business Monday. Our number one goal is to help you get into a home, and we’ve found that the best way to do that is to make ourselves available to you.
With that said, we’re happy to help you Monday. Feel free to come visit the office or call us. We have all hands on deck to take care of your VA home loan needs!
We hosted a lunch and learn at the Veterans center at Portland State University Wednesday. It was a great opportunity to work with some Veterans on a more personal level.
Mike Frakes, Pam Conrad, and Joe Kuziel were there to represent the lending side of the mortgage industry and Steve and Devon Granmo were there to represent the real estate side.
We taught a short class on buying a home using the VA home loan benefit and then spent time eating and answering questions. It was a fun opportunity to associate with a younger group of Veterans and see what kind of questions they had.
Overall it was a fun experience and we look forward to working with PSU in the future!
Getting a home loan can be an intimidating process, and I know because I’m in the final stages of buying our first home. Adding one more confusing acronym to the mix doesn’t help the situation out too much either.
That’s why we’re here - to help you get a better understanding of the confusing world of mortgage and real estate.
What are Qualified Mortgages?
The newest acronym, QM, stands for Qualified Mortgage. Its a title for specific loans that meet new rules and regulations. They’re designed to protect homebuyers against risky loans and unrepayable situations.
In order to be considered a Qualified Mortgage, the loan must meet certain standards. Here are some do’s and don’ts for QM.
- No interest only loans. The borrower must be paying something to lower the balance of the loan.
- No balloon payments. This is a loan where the borrower has to pay back the balance of the loan in one lump sum at the end of a certain period of time.
- No loans that extend beyond 30 years.
- Borrowers must meet specific criteria to be considered capable of repaying the loan. For example, they need to meet minimum credit history guidelines and have a manageable monthly debt-to-income ratio.
- Limit on amount of fees and costs required to be paid by borrower.
It would be a whole lot easier to understand what was going on if the rules and regulations didn’t change so frequently, but that would probably lead to another bubble burst similar to 2008.
Mortgage rules are designed with the homebuyer’s best interest in mind, and frequently are very helpful. However, sometimes they are untested ideas that can cause more harm than good.
Right now, we’re all playing a waiting game because we don’t know exactly how the rules will impact the mortgage industry and the loan process. Now that it’s been close to a week since the QM effective date, we’ve seen little to talk about and the overall outlook is bright.
Many professionals or becoming more confident that QM will help homebuyers and the mortgage market.
Creekside Mortgage, Inc, if you have more questions or concerns, feel free to reach out to us. 1.800.920.5420.
Melvin L. Watt was sworn in Monday as the new director of the the Federal Housing Finance Agency (FHFA).
Watt came in guns blazing with a huge change. In December, the previous director, Edward J. DeMarco had announced a plan to reduce the slightly monopolistic hold Freddie Mac and Fannie Mae have on the housing industry. The strategy was to increase the base guarantee fee (g-fee) by .01 percentage points.
The goal behind this increase is to make it more expensive to use Freddie and Fannie, opening the door to other private firms.
Watt came into office saying that he would delay the planned increase until it went into a more indepth review. He said he wanted to ensure it would not have a negative impact on the housing market.
Some experts think that the increased fee would not open doors to other firms, but would only increase the cost of loans and ultimately get charged to the borrowers by the lenders.
Recently I was presented with a question that I think few people take into consideration when talking about the VA Home loan program. The question was asked by a young woman I met at the dog park. She asked “Can I use my husband’s VA benefit to buy a house if he was killed in Iraq?”
I think we often, unintentionally, forget that many of our service men and women have a spouse to consider and they can easily be overlooked when it comes to receiving benefits.
So to answer the question, here are the guidelines to ask yourself if you are the surviving spouse of a service member.
- Are you the unmarried surviving spouse of a Veteran who died as a result of service or service-connected causes?
- Are you the surviving spouse of a Veteran who dies on active duty or from service-connected causes, who remarries on or after age 57 and on or after December 16th of 2003?
- Was your spouse an active duty member who was listed as Missing In Action or Prisoner Of War for at least 90 days?
If you can answer yes to any one of the above questions, then you may want to check on the status of your eligibility. Maybe it’s time to use what has been earned and is rightfully yours.
The idea of helping the surviving spouse by being able to use the VA Home Loan guarantee is a great way a Veteran can still provide for his or her family even when they are no longer with us.
So you got your Certificate of Eligibility (COE) and it says that you qualify for $36,000. That’s great if you could get into your time machine and buy a house back when that amount was decided on in 1987!
Let’s take a step back and get a little history on the VA loan.
The program started to help Veterans get financing for homes after military service. The government thought that making credit more available would be better and cheaper than simply handing out a check to everyone.
So in 1944 the government began the VA loan guarantee. It started out guaranteeing up to $2,000. Which in 1944 was about 25 percent of the average house value.
In 2005 the VA loan program changed how it worked. $36,000 was assigned as the basic entitlement amount and you could get 25 percent of anything above $144,000 but not exceeding $417,000.
That doesn’t guarantee you can get a loan for $417,000 either. You have to qualify for that amount based on your credit history and income.
Basically, you don’t need to worry, the VA will guarantee 25 percent of the purchase price as long as it is between $144,000 and $417,000. This will make your lender happy and help you get an excellent rate without having to put 20 percent down.