written by Andrea Roylance, senior mortgage loan officer, Movement Mortgage
When I ask an applicant if they have a down payment, I usually already know the answer. Am I a mind reader? Yes! Um okay … actually, no. But I have been doing this long enough that I have picked up on social cues like body language, dead air, and the shared meaningful looks between spouses or the people I am meeting with that clue me in on what they are going to say. Generally, I get one of two responses: A quick and proud, “Yes, we can put down (insert percentage or dollar amount here).” Or, I encounter an awkward silence for a few seconds followed by the customer telling me they have very little saved or were hoping for a loan that does not require any money down.
There is nothing wrong with the second response. I hear it often and it does not bring the application to a screeching halt like a lot of people fear. It is simply one more piece of their situation that I work through to find the best loan option to fit their needs. Every client’s situation is different. Not everyone has a down payment when they are ready to buy a home. Does that mean you shouldn’t? In my opinion, not necessarily. I recommend weighing your options to see if the cost of waiting and saving outweighs the cost of buying now.
If you are following the real estate market, the prevalent predictions say we will face a rise in rates and home prices throughout the year. This simply follows the law of supply and demand. There are not enough homes on the market and the demand is high, so the cost goes up. Rates are a little harder to predict, but there is some hope they will stay steady and not rise, like we have been hearing they will for over a year.
In short: Weigh your options and do what’s right for you. If you do want to buy, but don’t have a down payment yet, check out these suggestions for coming up with a down payment:
Start saving now. Maybe even check into a dedicated savings or an IDA Savings Account program that matches the money you put into it.
Gift funds are allowed on most loans if they are from an acceptable source like a parent, spouse, sibling, grandparent, and a few others. FHA loans even allow your employer or a charitable organization to gift money for a down payment.
Check into down payment assistance options you may qualify for. In Cache Valley, for first time homebuyers, there are options like the Own in Logan Grant from Neighborhood Non-Profit Housing and the Bear River Association of Government which offers BRAG Funds, a zero interested deferred loan.
Some people choose to borrow or withdraw from their 401k. Parents can even gift funds to their children from their own account.
There are homeownership investment programs out there, which help with a down payment in return for a share of the future change in value on your home.
Loan programs have changed over the years. A higher down payment was required in the past to even get a loan. That is not the case anymore. There are more loan options available than ever, even if you haven’t saved a hefty down payment:
An FHA Loan has a minimum down payment requirement of 3.5%.
Conventional Loans used to require a 5% minimum down payment; that has decreased to 3%.
If you are seeking to buy in a rural area, consider a USDA Loan. This program does not require a down payment, but has certain restrictions.
Utah Housing is a loan program that offers financing in the form of a first and small second mortgage to cover 100% financing, if you qualify. They have four loan programs available to most Utah lenders.
For veterans or a surviving spouse of a veteran, there is the VA Loan program. It does not require a down payment.
Most lenders will consider you to be less of a risk with a good down payment contribution to your loan. This may mean a lower interest rate and lower or no mortgage insurance (lower upfront fees and lower ongoing fees), which means a lower monthly payment. You will also have more equity right off the bat. Combined with a great credit score, you should expect to experience a smoother loan and a shorter loan processing timeframe.
There are homebuyer classes available online that can guide you through what you need to know about buying a home. These are a good place to start before meeting with a lender.
Still, my best advice is to pick a good lender, one who tries to understand your particular situation and provides you with all options available to you. They should also help you understand anything you have questions about. Don’t be scared to ask questions. You are not a loan, you are a customer making one of the most important purchases of your life. Your lender should take the time to be your guide through the entire process and help you make an informed decision.