For first-time home buyers, a no down-payment mortgage is an attractive deal, especially if money is not available to consider a full down-payment. Most Cape Coral mortgage companies will offer such deals but they come with a caveat. This is why before you seal the deal, it is important that you determine whether or not a no down-payment mortgage is right for you. So when is this mortgage option suitable?
Timing is everything even in buying a home. Take advantage of seasons where sales are rising while supplies are dropping. In many neighborhoods and cities, prices start to increase. Even mortgage rates are lower compared to next year. If you choose 30-year loans, the monthly cost is considerably lower. The monthly payment is not usually the factor that deters buyers from investing in a property. It is usually the down-payment.
Most mortgage companies require buyers to put a 20% down-payment. While many home buyers have enough earnings, they have a few savings in the bank. This is where no down-payment mortgage programs come in. These programs allow you to buy a home without worrying about the required down-payment.
How does the no down-payment program work?
The housing market has changed over the years. If in the past you need to save a certain amount of money to qualify for a mortgage, home buyers now have the option to buy a home without the required 20% down-payment. While it can be a risky move considering the consequences that it entails, it is good for all the right reasons.
Avoid blowing your savings on mortgage payments
You still need to save money on emergency situations. While you may not ask for it, emergencies can happen. You need to prepare for these situations and the only way to do it is by making sure that you have enough money in the bank. Depleting your entire savings is not a good idea when taking out a mortgage loan. What if your roof collapsed? What if you suddenly become ill? Your savings can save you from these emergency situations. Being house-poor as what experts refer to it, is not a good thing. Although putting a 20% down-payment is considered as financially conservative, you can become financially broke if that is all that you have. Making a small down-payment is a financially conservative option.
You can buy a house with no down-payment required by applying for a no-money-down mortgage. A mortgage lender will educate you about the options that will work for you. You can even use cash gifts as your down payment. Be sure that you follow the correct procedures or the cash gift will not be considered valid. Your lender will check if the cash gift is indeed a gift, not a loan in disguise. Cash gifts will not require home buyers repayment.
You can also take advantage of FHA down payment assistance program. This program is available to qualified home buyers in the U.S. Programs vary by state so you need to check for the options that your lender will consider you to be eligible. Grants are also available for home buyers. While it has been estimated that 87% of prospective buyers with single-family homes qualify for this type of grant, less than 10% of these buyers consider applying for such grants.
Like any mortgage loan program, it is imperative that you meet FHA loan requirements. First, you need to have a credit score of at least 500. You will also have to secure proof of income which needs to be verified using pay stubs or W-2 statements. It is important that you do not have any history of foreclosure, short sale, or bankruptcy within the year.
Putting more money down is still the best practice as it enables you to have a lower monthly mortgage payment. If the type of mortgage you have requires insurance, the more money you put as down will eventually cancel your mortgage insurance in a few years. Explore your options by talking to a mortgage specialist.