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Category: Mortgage (Page 1 of 45)

Debunking the Myth: You Don’t Need a 20% Down Payment for a Mortgage

The idea of needing a 20% down payment for a mortgage has long been fixed in the minds of prospective homebuyers. However, this traditional belief doesn’t hold true in today’s dynamic housing market.

With evolving loan options and changing financial landscapes, it’s important to debunk the myth and explore the advantages of bringing in a small down payment when securing a home loan for a primary residence.

Accessibility and Affordability

Requiring a 20% down payment can be a big hurdle to homeownership for many. For first-time buyers or those with limited savings, this amount may be prohibitively high.

Fortunately, many mortgage programs exist that allow for lower down payments, such as Federal Housing Administration (FHA) loans, which require as little as 3.5% down.

VA loans for those in our military and our veterans can require no down payments whatsoever!

These options make home ownership far more accessible and affordable for a broader range of would-be  buyers.  This provides new opportunities for individuals to enter the market and build equity.

For today’s most widely-used purchase mortgage programs, down payment minimum requirements are:

  • FHA Loan: 3.5% down payment minimum
  • VA Loan: No down payment required
  • HomeReady/Home Possible Conventional Loan (with PMI): 3%
  • Conventional Loan (with PMI): 5%
  • Conventional Loan (without PMI): 20% minimum
  • USDA Loan: No Down Payment required

PMI is “private mortgage insurance”…and you can find out more about that here…

You can also find out more on the specifics of multiple mortgage types here…

By allowing lower down payments, lenders offer more financial flexibility to aspiring homeowners. This means that you can become a homeowner sooner and start building equity in your own home right away!

Opportunity for Building Wealth

Rather than waiting until they accumulate a large down payment, individuals can enter the housing market sooner by utilizing mortgage programs with lower down payment requirements.

white paymaster ribbon writer adding machine placed on tabletop

This early entry enables homeowners to benefit from potential property appreciation, which can be a valuable source of wealth building over time.

By leveraging their down payment funds to secure a mortgage and invest in a property, individuals can start building equity and potentially generate significant returns in the long run.

Would-be borrowers can also utilize gifts from relatives for their down payment and closing costs.  Find out more on that here…

Flexibility and Financial Freedom

Earmarking a significant portion of savings towards a down payment may leave homebuyers financially strained, limiting their flexibility and ability to handle unexpected expenses or invest in other areas.

Opting for a lower down payment allows buyers to retain more cash on hand, providing a financial safety net and allowing for future investments or potential home improvements.

This increased flexibility enhances financial freedom and offers peace of mind in managing homeownership-related expenses.

In Conclusion

person with keys for real estate

The belief that a 20% down payment is necessary for obtaining a mortgage is no longer an absolute truth.

While a larger down payment can offer certain advantages, such as lower monthly payments, it is essential to recognize the benefits of alternative mortgage programs with lower down payment requirements.

These options promote accessibility, affordability, and the opportunity for investment and wealth building. By understanding the evolving landscape of mortgage financing, prospective homebuyers can make informed decisions that align with their financial goals and aspirations. 

So please do reach out to me for more, as it would be my pleasure to help you structure your loan and down payment options.

Consumer View of US Housing Market Reach New Lows – But Is It Correct?

Only 21% of Americans say it is a good time to buy a house, the lowest percentage ever in Gallup’s polling sample.

Prior to 2022, for example, 50% or more respondents unfailingly thought it was a good time to make a home purchase, and you can find the specifics of the poll here….

The latest results are from Gallup’s annual Economy and Personal Finance poll, conducted over 3 weeks in April. Unbelievably, 78% percent of those surveyed say it is a bad time to buy a house right now.

To add some context, Gallup first asked Americans about their thoughts on the housing market in 1978, when 53% thought it was a good time to buy.

Per Jeffrey Jones’ report, “thirteen years later, when the question was asked again, 67% held that view. The record high of 81% was recorded in 2003, at a time of growing homeownership rates and housing prices.”

No doubt the respondents are sure of their positions, but does the data really bear that out?  And what does the future hold?

The Current Situation – Two Viewpoints

Per Jones, “in the past two years, as housing prices have soared and the Federal Reserve has raised interest rates to try to tame inflation, houses have become less affordable for many Americans, and views of the housing market have tumbled.”

However, another housing survey, this one from the industry specific MBS Highway, showed in April another solid increase in buying activity as the spring selling/buying season kicked into high gear. This marks the 4th-straight month of improving sentiment for their report.  You can find out more on that here…

68% of respondents characterized their market as ‘active’ and 33% of respondents indicated that they were now seeing price increases.

Media Bias Might Be To Blame

The latest Existing Home Sales report showed that the median home price declined on an annual basis for the first time in almost 11 years. That seems like a big headline, right?!

This is a classic case of the media trying to gain and keep viewership with shock headlines.

In many ways, our mainstream media is not truly interested in digging deeper for the facts and truth.  You can find out more on that here…

First of all, the decline was only 0.2% – and it was for the median home price, which is NOT the same as appreciation.

FHFA’s latest appreciation report showed that home prices rose 5.3% year over year. And according to Case-Shiller, they rose 3.8% year over year.

These are the two best ways to measure home price appreciation.

The Real Inside Scoop

Although no one can deny that higher mortgage rates are keeping would-be buyers on the sideline, the story that no one is talking about is the lack of housing supply.  You can find out more on that here…

More importantly, let’s take a closer look at active listings in the US:

You might remember from your Econ 101 class that supply and demand is what sets prices.  Smaller supply means that a higher price is to be paid…so I do believe that home prices will not be going down any time soon!

All things considered, the opportunity in this market appears to be very favorable.  If you are trying to wait to time the market, that home you are waiting for will just be more expensive down the road. 

And if you make that purchase now and interest rates fall (as many think will happen), you can easily refinance into a lower rate!

In Conclusion

Per Jones, “it is likely that Americans’ pessimism about homebuying reflects the high prices and high interest rates that are conspiring to make mortgage payments less affordable. These attitudes may keep many prospective homebuyers out of the market.”

If that’s the case, that means there is a window of opportunity for buyers ready to act today.

Do reach out to me to find out more, as it would be my pleasure to help you finance that investment property or the home of your dreams.

Recession and the Housing Market

Many experts are once again predicting recession as economic production seems to be slowing.

The definition of a recession has been typically recognized as two consecutive quarters of economic decline, as reflected by Gross Domestic Product (GDP) in conjunction with monthly indicators such as a rise in unemployment.

Many are concerned that the recession will dramatically and negatively impact the housing market…but historically that isn’t the case.

Real Estate During Recession

Believe it or not, outside of the “great recession” of 2007 (which was caused, in part, to a housing crisis), home values and real estate generally appreciate historically during times of recession.

That seems counter intuitive…but because interest rates generally drop during recessionary periods, homes become MORE affordable to potential buyers. Even though property values are higher, buyer see lower payments provided by those lower rates.

When more people can qualify for homes, the demand for housing increases – and so do home prices.

Mortgage Rates During Recession

When a recession hits, the Federal Reserve prefers rates to be low. The prevailing logic is low-interest rates encourage borrowing and spending, which stimulates the economy.

During a recession, the demand for credit actually declines, so the price of credit falls to entice borrowing activity. 

Here’s a quick snapshot of what mortgage rates have done during recessionary periods:

Obtaining a mortgage during a recession might actually be a good opportunity. As mentioned, when the economy is sluggish, interest rates tend to drop.

Refinancing or purchasing a new home could be a great way to get in at the bottom of the market and make a healthy profit down the road.

With that said, borrowers should be market-wise and financially savvy when considering large real estate purchases in a recession.

The Great Recession and Home Prices

Home price appreciation continued during previous downturns, except for what is called the “Great Recession”.  While the recession officially lasted from December 2007 to June 2009, it took many years for the economy to recover to pre-crisis levels of employment and output.

So what made the Great Recession different? The housing boom that preceded the last recession was largely driven by an explosion in both home-building activity and mortgage credit.

Home buyers were able to get mortgages with no documentation of their income and no down payment. Many loans had introductory 0% interest periods that made them cheap to start but more expensive as time wore on.

Today, those loan products are no longer in existence.

Today’s Market

The growth in home prices seen during the current economic expansion has not been fueled by increased access to mortgage credit. In essence, today’s recession isn’t at all similar to the prior one.

Rather, it’s a simple reflection of supply and demand. Many Americans want to become homeowners, but the supply of homes available for sale is very low, pushing prices upward.

Mortgage rates are much higher than they were a few years ago, but I have a feeling that they will be coming down relatively soon. And more activity will push home prices higher.

In Conclusion

Although no one likes to see recession, you can observe that it actually can be beneficial for homeowners and would-be purchasers to refinance or purchase during these periods.

If you have more questions and or would like to strategize about purchasing or refinancing, don’t hesitate to contact me, as it would be my pleasure to help you!

Don’t Let Less-Than-Stellar Credit Slow You Down

Are you ready to purchase a home, but not sure your credit can get you in the front door?

Homebuyers with low credit scores can still get a mortgage, but don’t expect a ton of options or the lowest published interest rates.

However, with certain loan programs and lenders, it may be possible to obtain financing with low credit — especially if you can make a larger down payment, prove large cash reserves, and have a low debt-to-income ratio.

In some cases, low-credit mortgages aren’t ideal, but getting a mortgage sooner rather than later really can pay off in the long run.

What Is Considered a Low Credit Score for a Mortgage?

When it comes to conventional mortgages, any score under 620 is heavily scrutinized. Even though a 620 credit score is considered fair credit, a score below this level is essentially too low for a conventional mortgage. You’ll likely need to use a government-backed loan program like FHA that can accommodate lower credit scores.

About 15% of American consumers have credit scores in the 500 to 599 range on an 850-point scale, which is considered poor to fair credit, according to FICO. Another 10% are in the 600 to 649 range, which is considered fair credit.

You’re in good company if your score is less than ideal, and the right lender can help you get a mortgage or explain how to get approved in the future.

FHA Loan Credit Score Requirements and Options

With a score of at least 580, you can put down just 3.5% with an FHA loan. FHA loans have the easier credit score requirements than conventional loans. They are also quicker to offer borrowers a second chance after a bankruptcy or foreclosure.

Still, you might find that some FHA lenders will not work with you unless your score is at least 620. They’re allowed to have their own, stricter requirements.

As a result, you may have to put more work into loan shopping if your score is below 620. Historically, most FHA borrowers have credit scores in the 650 to 699 range.

Should You Improve Your Credit or Buy Now?

Most experts agree: Don’t put off buying a home, even if your credit isn’t the best.

Even though you will likely pay a little more for a mortgage if you have bad credit, go with where you are right now. In today’s market, time works against you as home prices are increasing. Borrowers could choose to wait a year and improve their scores to get a better interest rate, but increases in prices may negate any credit score gains they make.

Tips for Getting a Mortgage with Low Credit

1. Get help from a mortgage lender and let me do some of the work for you. I’m incentivized to get you approved, so I can help you understand the different options available to you.

woman in white crew neck t shirt using silver macbook

2. Don’t give up easily. You may hear a lot of no’s from lenders before you hear a yes.

3. Spend a few months improving your credit before applying for a mortgage. Paying down high-balance credit cards, making on-time payments and disputing credit report errors can help your score considerably.

4. Apply as soon as possible.  Lenders often use credit simulators that can make credit improvement suggestions for you if you need help getting approval.

Credit Repair Options

If you need to improve your credit score to qualify for a mortgage or earn a lower interest rate, I recommend that you reach out to Jennifer Amsbaugh and see what she can do:

Her program is designed for individuals and families struggling to pay debts while saving money for daily expenses at the same time. She has a particular methodology that has proven to be effective in improving scores.

Secondly, if you don’t have any credit and need to build it, there are some quick and easy options available.  You can find that here:

In Conclusion

There are those out there who won’t be able to qualify for a mortgage…and some people won’t have the mitigating factors they need—like 10% down—to qualify despite having bad credit.

But having bad credit doesn’t have to stand between you and your desire to own a home.

Credit history is only one piece of your overall financial picture. If you have more questions about your credit and how it impacts your ability to finance a home, please do reach out to me, as it would be my pleasure to help!

Using Gift Funds for Down Payments and Closing Costs – A Primer

When it comes to buying a home, one of the biggest obstacles for many buyers is the down payment. But did you know, borrowers can use gift funds for that down payment?

Believe it or not, many homebuyers turn to family and friends for financial help.

25% of homebuyers ages 23 to 31 and 17% of those ages 32 to 41 received gifts from relatives or friends to help with their down payment, according to the National Association of Realtors.

Secondly, down payment requirements are much different today than they have been in the past, as FHA loans and some conventional loans often have low down payment requirements, as little as 3% in some cases.

And, yes, borrowers can absolutely use gifts from family members toward those down payments!

Who Can Gift Down Payment Funds?

Lending regulations won’t allow borrowers to use a cash gift from just anyone to qualify for a mortgage. The funds usually must come from a family member, such as a parent, grandparent, or sibling.

It’s also generally acceptable to receive gifts from your spouse, domestic partner, or significant other if you’re engaged to be married.

Restrictions on Down Payment Gifts

Both conventional loans and FHA loans allow gifts as down payments.  There is no minimum borrower “contribution” for a one-unit, primary residence, even when bringing in less than 20% down for conventional loans. 

That gift can cover the entire down payment and the closing costs.

For 2-4 unit primary residential properties, the borrower must make a 5% minimum borrower contribution from their own funds, per lending regulations for conventional loans.  FHA loans do not have this requirement.

After the minimum borrower contribution has been met, gifts can be used to supplement the down payment, closing costs, and reserves.

It’s important to know that gift funds may NOT be used for investment property purchases.

Mortgage Gift Rules by Loan Type

FHA loans: The Federal Housing Administration (FHA) backs mortgages with a minimum down payment of 3.5 percent. The entire amount can be gifted, but the FHA requires a letter and supporting documents from the gifting party.  Bank/asset statements showing the giver has had the funds for 60 days will be required.

Conventional loans (Fannie Mae/Freddie Mac): When purchasing a single-family residence, the entire down payment can come from a gift. These funds can come from a relative, employer, close longtime friend, or a nonprofit. Freddie Mac also allows borrowers to use wedding gifts, so long as you provide a copy of your marriage license.

VA loans: The U.S. Department of Veterans Affairs (VA) guarantees home loans for eligible military borrowers. VA loans require no down payment, but VA guidelines allow borrowers to put gift funds toward closing costs or a down payment, if they so choose. The documentation rules are similar to those of FHA loans.

USDA loans: The U.S. Department of Agriculture (USDA) guarantees no down payment-mortgages to borrowers with low to moderate income in rural corners of the country. Like the VA loan program, gift money can be used to pay closing costs. Borrowers must provide a gift letter and supporting documents consistent with the gift letter rules of other loan programs.

Documenting a Down Payment Gift

magnifying glass on top of document

Lenders require the borrowers to provide some detailed documentation any time a down payment gift is used. Specifically, the borrowers will need to produce a letter which includes the name of the donor, their relationship, the date and amount of the gift, and a statement that says the money has no expectation of repayment.

Both parties will need to sign the letter and the lender may also require additional documents. For FHA loans, borrowers will need to show copies of the donor’s bank statements to prove that they’re actually in a position to make a gift.

In Conclusion

If your family decides to help you out with a down payment gift, you as the recipient should be extremely grateful.

However, like any large financial move, there are some rules and regulations to consider. So please do reach out to me for more, as it would be my pleasure to help you structure your loan and down payment options.

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