Getting the Keys to Your First Home with a Low Down Payment
(ARA) – Home ownership has always been an important component of the American Dream, but many consumers are worried about their ability to buy a home at a tumultuous time in the real estate market. It’s important to know that there are still financing options available for borrowers seeking a responsible, safe and affordable way to buy a home.
Traditionally, home buyers were required to put down at least 20 percent of a home’s purchase price in order to qualify for a mortgage. But with the national median home price still around $220,000, many buyers are unable to come up with the $44,000 needed for a 20 percent down payment. But low down payment options are available.
“This is a challenging time for our nation’s housing market,” says Kevin D. Schneider, president of U.S. mortgage insurance for Genworth Financial and president of the Mortgage Insurance Companies of America (MICA). “We’re seeing a greater number of low down payment, privately insured mortgages. The high cost of housing in many areas continues to put home purchases out of reach for many families. The mortgage insurance industry will keep working to help low and moderate income borrowers realize their dream of homeownership.”
Here are four key questions and answers that can help first-time home buyers who want to get a low down payment loan in today’s market.
1.) What are my options if I don’t have 20 percent down payment?
Some mortgage lenders will grant home loans to qualifying home buyers with a down payment of as little as 3 to 5 percent and even less for the most qualified borrowers. A low down payment mortgage with private mortgage insurance (PrivateMI) allows first-time homebuyers to get into a home sooner with a lower down payment, and there is no pre-set limit on the loan amount.
2.) How much can I afford for each monthly payment?
To qualify for most conventional loans, housing expenses should not exceed 26 to 28 percent of your gross monthly income. Some government loans use a ratio of approximately 29 percent of your gross monthly income. Borrowers should compare their monthly income with monthly long-term obligations and expenses for purchasing a home. Because the situation varies with each borrower, consult with your mortgage lender to determine how much you can afford.
3.) How does a low down payment loan with private mortgage insurance compare with a piggyback loan?
A single loan with PrivateMI offers a more predictable, cancelable, safe and secure financing option compared to piggyback mortgages. Piggyback structures, which have virtually vanished from the market in recent months, stack a high-rate small second mortgage on top of a lower-rate first mortgage. For most consumers, the piggyback loan can have several drawbacks, including higher monthly mortgage costs, a balloon payment and loss of financial flexibility. In addition, PrivateMI can be canceled once the homeowner achieves 20 percent equity, and 90 percent of borrowers cancel their PrivateMI within 60 months.
4.) Are private mortgage insurance premiums tax deductible?
PrivateMI premiums are tax deductible for borrowers who purchase or refinance a home in 2007. Families with a household income of $100,000 or less are able to deduct the full premium cost, while families earning up to $109,000 can qualify for a reduced deduction. This deduction marks the first time that homeowners with low down payment loans can deduct the cost of mortgage insurance premiums, resulting in a potential savings of $300 to $350 for qualified taxpayers.
Buying a home is usually the biggest financial decision for any family. With uncertainty about the direction of the housing market and slower appreciation of home prices, many people who used exotic loan structures are being surprised with a big jump in their monthly payments.
While some mortgage financing products, such as interest-only loans and piggyback mortgages, are fading from sight, low down payment loans with mortgage insurance remain readily available for qualified borrowers.
Courtesy of ARAcontent