Homes by Email
Be the first to see new listings as soon as they hit the market!
In talking to first-time homebuyers I find that there are often misconceptions about what it takes to qualify for a mortgage loan and how large a down payment is needed, and confusion about the process of getting a new mortgage loan. Reading and talking to other agents reinforces that conclusion. In this post I hope to provide some basic information that will be helpful, and that may help some prospective buyers compare their alternatives.
For most borrowers the primary mortgage loan products will be of only two types: Conventional or FHA. One of the misconceptions I mentioned above is that it is getting a loan requires a large down payment, but there are very low down payment options available – 3%-down Conventional and 3.5%-down FHA loans, for example.
For this discussion I have used the same assumptions for every example that I’ll share:
For the calculations that follow I used a great tool called Austin Title Agent, which provides other estimated prepaid expenses and closing costs.
Here are some details of the low down payment loans I mentioned above:
There are a few acronyms to define here:
If you qualify, another low (or zero) down payment loan you should consider is backed by the U.S. Dept. of Veterans Affairs. This example applies the same assumptions I outlined in the beginning:
There is no line item for mortgage insurance in those calculations, but there is a VA Funding Fee, which is a percentage of the loan that varies depending on the specifics of your loan and your military category. There is a lot of great information available at https://www.va.gov/housing-assistance/.
Now, if you are willing and able to bring more cash to your purchase, here are some examples of how that can affect your costs and payment:
Note that the PMI line item in the 10% down payment scenario is about $156 per month versus $420 in the 3% down payment example earlier in this post, and the total monthly payment is almost $400 lower. With a 20% down payment it is $0, and the total payment is lower by almost $700.
There are other types of loans available and a lot of details and nuances that your mortgage lender will discuss with you, but please let me know if you have any questions about the information provided here. I will be happy to help.