Applying For A Home Mortgage
For most people, raising the money for the 20 percent down payment that is typically paid on the purchase of a home doesnt come easy. The good news is that there are quite a few low down payment mortgages available nowadays. When deciding on a mortgage plan to go for however, you should determine if 20 percent is indeed the standard rate.
The fact is that most mortgage lenders do require you to make the 20 percent down payment at the minimum. If you put down less than 20 percent, most lenders will require you buy Private Mortgage Insurance (PMI). The cost of PMI is usually equivalent to one half of 1 percent of the selling price of the property, and is intended to protect the mortgage company if you are unable to pay back the loan. You will therefore end up avoiding having to pay the PMI costs...and thereby save more money...if you can manage to raise the 20 percent down payment.
What if you put down less than 20 percent? If you cant afford a 20 percent down payment, paying PMI may be your best option. The good news is that you may be able to get the mortgage lender to cancel PMI when you attain 22 percent equity in your home, or even 20 percent equity if you have a good record of making payments.
Another option available to you is securing an 80/10/10 loan. This type of loan will save you from having to purchase PMI by paying half of the 20 percent down payment with another mortgage plan. 80/10/10 loans work on the principle that the bulk of the selling price of the home is paid for through the first mortgage, with 10 percent being paid off with a down payment, and the remaining 10 percent being paid off with another mortgage. You may also pay off the 20 percent down payment with an FHA loan that you secure from the government. This last alternative will still require you to pay for insurance, but in most cases a down payment of as little as 3 percent will suffice.
What about the possibility of purchasing your home without having to make any down payment at all? It is possible to finance 100 percent of the purchase price of a home with a mortgage that requires no down payment at all. The downside is that these types of financing plans will entail much higher interest rates than typical mortgage arrangements. This will of course result in higher monthly payments for you. Also, because you didnt make the standard 20 percent down payment, you will have to pay PMI.
Lets review the options. When deciding how much to put down on a home, its important to know what your options are so you can decide what works best for you.
Q: Would you prefer getting instant equity in your home and lowering your monthly mortgage payment? If so, paying the 20 percent down payment is your best alternative.
Q: Are you unable to come up with a 20 percent down payment but want to avoid paying PMI? A: Then you may want to consider an 80/10/10.
Do you want to buy a home as soon as possible in order to avoid the rising costs of home purchase but can only afford a 3 to 5 percent down payment? An FHA loan secured from the government may then be your best course of action.
Q: Do you have no savings at all but are so eager to enter the real estate market immediately that you are willing to pay the extra costs involved in a no money down mortgage? A: Provided you are able to handle the required payments and are confident your financial situation will enable you to refinance for a mortgage with better terms in the future, it could be the way to go. The important thing is to evaluate your own situation carefully before you decide how much to put down on a home.
The fact is that most mortgage lenders do require you to make the 20 percent down payment at the minimum. If you put down less than 20 percent, most lenders will require you buy Private Mortgage Insurance (PMI). The cost of PMI is usually equivalent to one half of 1 percent of the selling price of the property, and is intended to protect the mortgage company if you are unable to pay back the loan. You will therefore end up avoiding having to pay the PMI costs...and thereby save more money...if you can manage to raise the 20 percent down payment.
What if you put down less than 20 percent? If you cant afford a 20 percent down payment, paying PMI may be your best option. The good news is that you may be able to get the mortgage lender to cancel PMI when you attain 22 percent equity in your home, or even 20 percent equity if you have a good record of making payments.
Another option available to you is securing an 80/10/10 loan. This type of loan will save you from having to purchase PMI by paying half of the 20 percent down payment with another mortgage plan. 80/10/10 loans work on the principle that the bulk of the selling price of the home is paid for through the first mortgage, with 10 percent being paid off with a down payment, and the remaining 10 percent being paid off with another mortgage. You may also pay off the 20 percent down payment with an FHA loan that you secure from the government. This last alternative will still require you to pay for insurance, but in most cases a down payment of as little as 3 percent will suffice.
What about the possibility of purchasing your home without having to make any down payment at all? It is possible to finance 100 percent of the purchase price of a home with a mortgage that requires no down payment at all. The downside is that these types of financing plans will entail much higher interest rates than typical mortgage arrangements. This will of course result in higher monthly payments for you. Also, because you didnt make the standard 20 percent down payment, you will have to pay PMI.
Lets review the options. When deciding how much to put down on a home, its important to know what your options are so you can decide what works best for you.
Q: Would you prefer getting instant equity in your home and lowering your monthly mortgage payment? If so, paying the 20 percent down payment is your best alternative.
Q: Are you unable to come up with a 20 percent down payment but want to avoid paying PMI? A: Then you may want to consider an 80/10/10.
Do you want to buy a home as soon as possible in order to avoid the rising costs of home purchase but can only afford a 3 to 5 percent down payment? An FHA loan secured from the government may then be your best course of action.
Q: Do you have no savings at all but are so eager to enter the real estate market immediately that you are willing to pay the extra costs involved in a no money down mortgage? A: Provided you are able to handle the required payments and are confident your financial situation will enable you to refinance for a mortgage with better terms in the future, it could be the way to go. The important thing is to evaluate your own situation carefully before you decide how much to put down on a home.
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