Questions You Must Ask Before Applying For A Home Mortgage
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by: marciafreeman
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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. But when deciding how much to put down, you should consider the following: Is 20 percent the standard down payment?
In order to qualify for a conventional mortgage, lenders usually require a minimum down payment of 20 percent. If you cannot manage to make the 20 percent down payment, you will probably be required to purchase Private Mortgage Insurance or PMI. This insurance typically costs about one half of 1 percent of the purchase price of the home and protects the lender in the event that you should default on 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 are unable to make the 20 percent down payment, purchasing PMI may be your next 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.
An alternative is to apply for an 80/10/10 loan. It enables you to avoid PMI by financing half of the required 20 percent down payment with a second mortgage. 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. Or you can apply for a government insured FHA loan. Again, you will have to pay for insurance, but you may qualify with a down payment as little as 3 percent.
What about putting down no money 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.
Let us look into other payment alternatives available to you. 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.
Do you want to save on paying PMI costs but are unable to raise the 20 percent down payment? An 80/10/10 loan may then be your best option.
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? A: Maybe a government insured FHA loan would be a good answer.
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? You may be able to do this if you are fully confident in your ability to make the payments and to secure a better mortgage plan later on down the line. When going for this option however, it is important to assess your finances thoroughly with regard to how much down payment you are able to pay. Find more Refinance | Mortgage rates | Mortgage refinancing | Home loans | Mortgage rate |
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