While browsing home listings can easily inspire daydreaming (a patio for your plant collection! an updated kitchen for entertaining!), calculating the down payment can quickly bring many homebuyers back down to earth.
Yet many first-time buyers may be closer to homeownership than they think. Several options and resources may exist to help make buying a home more attainable.
1 :: LOW DOWN PAYMENT OPTIONS ARE AVAILABLE THAT MAY HELP REDUCE UPFRONT COSTS
Some people have the misconception that a 20% down payment is required for a home purchase, when in reality, many home loan options may exist that could potentially put consumers into a home with a low down payment of just 3%. In fact, 77% of non-cash, first-time homebuyers in 2018 purchased a property using a down payment of less than 20%, according to a study by the National Association of Realtors.
2 :: PRICE, CLOSING TIME AND REPAIRS MAY BE UP FOR NEGOTIATION
Rarely does everything line up perfectly in a listing. The price may be slightly out of reach, the home may be stunning except for the ancient carpet or a buyer could need more time to wrap up their current living situation before they can move. That’s where negotiation comes in, and it’s one of the many benefits of working with an experienced real estate agent.
In addition to price, an agent can help negotiate closing costs and any repairs or updates that need to be made to the property before the sale is final. And – especially important in today’s fast-changing world – agents also may be able to negotiate more flexibility in the contract.
Some agents have been helping their clients add what can be referred to as a “Covid Clause” or “Coronavirus Clause” to their contracts. These addendums allow for extensions or special accommodations due to unforeseen circumstances arising from the novel coronavirus. What is included in the clause will differ based on each scenario.
3 :: PRIVATE MORTGAGE INSURANCE MAY EVENTUALLY BE REMOVED (AND MAY NOT BE REQUIRED WITH A VA LOAN)
While many loans with a less-than-20% down payment will require private mortgage insurance (PMI) to be added to the monthly payment, this often can be removed once the debt to income (“DTI”) ratio on the loan drops below 80% or as part of a refinance where the new DTI is less than 80%. The exception is with an FHA loan, where the only way to remove the PMI payment is by refinancing to a conventional loan.
VA loans come with several benefits not found through other funding options. For example, eligible veterans may be able to use a VA loan to purchase a home with no money down. And VA loans don’t always require private mortgage insurance (PMI), which is typically necessary on traditional loans if a down payment is under 20% of the home’s cost, because the U.S. government is guaranteeing a portion (25%) of the loan against the risk of default.
Every journey to homeownership will be different. Fortunately, first-time buyers don’t have to sort through the variety of funding and other options by themselves. Experienced real estate agents and loan officers are available to help guide them through the complex real estate process.
With all this in mind, we recommend talking to a trusted and knowledgeable local real estate agent if you are in the market to buy or sell real estate. They can provide you with specifics on what is happening in your local market.
Content pulled from “Knowing These Three Things Could Help You Buy a Home This Summer” written by Stephanie Visscher