Low Down Payment Programs Still Available to Buyers
By Sarah Ward, REALTOR®
I talk to potential buyers all the time who tell me that they have no possible way to buy a property. Well, as it turns out, many people have more options than they realize. In January of this year, U.S. home prices increased at the fastest pace since 2014 due to a pick-up in the economy, job growth, income growth, a surge in demand among those in their 30’s, and a lack of supply of homes for sale.
The good news is that mortgage interest rates are still at historic lows and the government has several programs to help its residents get into a property. There is political support on both sides of the aisle to help renters become homeowners as it’s been well understood that widespread home ownership contributes to a more stable and wealthy society. If you are a potential buyer, waiting on the sidelines, this may be a good time to enter the market as both interest rates and home prices are expected to increase over the coming years, as the economy picks up steam.
Several options are available to finance a purchase. First, the popular FHA loan requires as little as a 3.5% down-payment but requires an upfront fee for mortgage insurance of 1.75% as well as other closing costs. Credit scores go fairly low on FHA. (As low as a 500 FICO in some cases!) . As a rule of thumb, a buyer needs around 6% “all-in” to get into a property. So on a $400,000 property that would be $24,000 (gift funds are ok). These figures are close estimates; call us for exact values that match your situation.
What about the monthly payment?
On a $400,000 4% mortgage, your payment would be around $1910 mortgage principle and interest, $284 mortgage insurance, $80 hazard insurance, and $367 property tax, for a total monthly outlay of approximately $2641. Of course this amount could be higher or lower based on various factors. All payments and fees are fully disclosed during the escrow period.
What about qualifying?
As a rule of thumb, double the payment for the minimum monthly gross income needed. So in my example, that would be a requirement of approximately $5282 gross monthly pay, (before taxes taken out). If you have other debt, a higher gross income would be required. Finally, many other mortgage programs are available. Briefly, the VA loan requires no down-payment and you generally just need 6-months minimum military service. Other ultra-low down-payment government insured programs are available as well from Fannie and Freddie (government sanctioned mortgage agencies).
The point of this column is to start the conversation by giving potential buyers a rough idea of what it would take to get into a property. In addition to pride of ownership, a buyer can achieve a stable monthly housing expense (versus ever increasing rents!), and over the long-term, build up a significant equity nest egg. As a note, buyers can walk away from a property purchase during the first couple of weeks of an escrow period and lose nothing. Also buyers do not pay for the professional services of a real estate agent. If you are a potential buyer, call me to schedule a no-obligation meeting to review your situation. Additionally, we work with Margaret Ashwell and Sue Florence of Finance of America, outstanding veteran mortgage advisors right here in the College Area who will answer additional questions and help analyze your unique situation. Maybe it’s time to start exploring the idea of owning property in San Diego!