The Down Payment Required On A Home Purchase By Homebuyers

This ARTICLE Is About The Down Payment Required On A Home Purchase By Homebuyers

The home buying process is meant to be exciting, not stressful. Buying a home will start the next chapter of your life. Since the beginning of the human race, safe living space is required to live a long life. In the modern world, this goes without saying. Gustan Cho Associates are a highly skilled mortgage team who will do everything they can to help you qualify for a mortgage.

There are three major obstacles you must conquer to start the homebuying process. Those obstacles are credit, income, and assets (down payment). In this blog, we are going to focus on the third obstacle, the down payment. This is the main roadblock standing between many Americans buying at home or continuing to rent a property. In this article, we will cover and discuss The Down Payment Required On A Home Purchase By Homebuyers.

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The Down Payment Required On A Home Purchase Is Biggest Hurdle For Buyers

While most Americans understand what the down payment is, they are not educated on how much down payment they actually need. We are here to help. As a first-time home buyer, we have numerous down payment assistance programs, low down payment programs, and amazing mortgage products for those who do have a substantial down payment. As a first-time homebuyer, you put as little as 3% down when using a conventional mortgage.

Even if you are not a first-time homebuyer, you can get away with putting down as little as 3.5% with an FHA mortgage. If you are a brave American who served for our country and has VA benefits, you do not need a down payment. These percentages are based on the purchase price of the property.

Misconceptions On The Down Payment Required On A Home Purchase

It is a common misconception that you are required to put down 20% to purchase a property. The advantage of putting down 20% (or more) is you no longer need to pay mortgage insurance. In a recent poll, data showed that millennials are not aware of low-down-payment housing options. As the millennial generation is getting older, they are a key player in the real estate sector (a HUGE part of the economy). As mentioned above, you can purchase a home with as little as 3% down. Even if you are not a first-time homebuyer, you can purchase a home with a conventional loan with only a 5% down. This will open up numerous opportunities for Americans to purchase their homes. Click here for more information on CONVENTIONAL mortgages.

Down Payment Assistance Programs For First Time Home Buyers

DPA:

Before we dive into the details of down payment assistance, it is important to understand that nothing in this world is free. That holds true for most DOWN PAYMENT ASSISTANCE programs. While they are a great tool to help you get into a home, they usually have higher interest rates associated with them. Most down payment assistance programs will recover all of the assistance funds plus some additional interest before you are allowed to sell or refinance. If you plan on being in the home for a while, then we recommend looking into a down payment assistance program. We offer a few different programs, including the CHENOA FUND. Depending on your qualifications, this may be a great program to open the door for homeownership.

Benefits Of Sellers Concessions To Cover Closing Costs

SELLER CONCESSIONS:

Seller concessions, also known as seller credits are increasingly popular in today’s real estate market. Your realtor may tell you differently. This is because they can be tough to ask for, but this is a great tool to help you minimize cash out of pocket to purchase a property. We will now explain what a seller concession means. Simply put, seller concessions are funds given to you from the seller to be applied towards closing costs. Depending on the loan program, these percentages can change. In order to qualify, you must meet your down payment requirements, but you can have the seller pay some or all of your closing costs.

Maximum Sellers Concessions Allowed

Below are the maximum seller concessions allowed per loan program (for primary residences):

FHA- 6%
USDA – 6%
VA – 4%
Conventional- 3%

These percentages are calculated from the purchase price, not the loan amount. Asking the seller to pay a portion or all of your closing costs is a great tool to speed up the process of qualifying for a property. Above and beyond the down payment requirements, you are also responsible for closing costs. These closing costs include escrows (taxes and insurance), title fees, lender origination, and any local fees. If you negotiate correctly, you may only need to bring your down payment to the closing table (even less in states where property taxes are paid in arrears).

Property Tax Proration Credits

Example for states with property taxes paid in arrears: For clients in a state where property taxes are collected in arrears such as Illinois a borrower may bring less than the minimum 3.5% requirement on an FHA mortgage. In this example, we will have the seller pay 100% of the borrower’s closing costs. The closing date will be July 1st (HALFWAY THROUGH THE YEAR). Since property taxes are paid in arrears, the buyer receives credit for property taxes they are not responsible for.

Purchase Price = $200,000
Down Payment 3.5% = $7,000
Closing Costs = $7,500
Seller Concessions = $7,500
ANNUAL Property Taxes = $6,000

With the numbers above, the client needs to bring $7,000 to the closing table minus the tax prorations. Since this is halfway through the year, it will be 1/2 the annual tax bill or $3,000. In this example, the client will bring $4,000 to the closing table. $7,000 down payment – $3,000 tax credit = $4,000. Please keep in mind this rule does not apply to every state. For more information on tax prorations, please call Mike Gracz on 630-659-7644 or email mgracz@gustancho.com.

Saving For The Down Payment On A Home Purchase

Saving for a down payment takes discipline and time. It is important to set up a sustainable budget that allows for saving each and every year. This is also a way to prepare to budget for your mortgage payment and budget for future home-related costs down the road. Remember, when you own a home and something goes wrong, you no longer have a landlord to call. Yes, you have homeowners insurance, but those deductibles usually are around $1,000. You need to have a safety net for the unexpected.

We encourage our readers to follow our YouTube CHANNEL for updated guidelines and mortgage news. We want to help you achieve the American dream of owning a home. We can help you with a customized financial budget to save for the down payment or discuss down payment assistance programs offered through Gustan Cho Associates. To set up a mortgage consultation, call Mike Gracz on 630-659-7644 today.