Saving for a down payment is an intimidating prospect for many would-be homebuyers in the Twin Cities market. However, there are many waysto source a financially sound down payment—if you know where to look and how to plan. Likewise, there’s plenty of misinformation out there making first-time homebuyers believer that purchasing a home is nearly impossible. To combat the daunting prospect of down payments, here are a fewfacts to keep in mind as you consider your homeownership needs and long-term financial goals.
The Myth of 20% Down
The average American homebuyer believes a down payment demands 20% of a home’s purchase price, up-front. Did you know that you can pay a down payment assmall as 3.5%? How about 0% down? The truth is, it’s possible. There are countless loan products and programs available for homebuyers. For example, conventional loans that adhere to the federal government’s standards—as put forth by the familiar institutions Fannie Mae and Freddie Mac—only require 5% down for loans up to $417,000. Loan larger than $417,000 can make use of down payments as low as 10%.
Variety is Key
There are plenty other attractive programs to defray the costs of a down payment: Fannie Mae’s 3-percent program, FHA loans, and VA and USDA loans—to name a few. FHA loans are sponsored by the federal government’s Housing and Urban Development agency and allow for a 3.5% down payment for qualified buyers. Likewise, VA and USDA are cost-effective programs for most military veterans and active-duty personnel. These loans require 0% down and cater to homes for sale in rural and outer lying suburbs.
The Unexpected Benefit of Mortgage Insurance
You may be thinking: why would banks allow homeowners to take out low down payment loans anyway? This is where mortgage insurance comes in. When offering a low down payment, lenders pair these options with mortgage insurance. If you don’t pay that 20% up front, mortgage insurance protects your lender while allowing you to build equity in your home. The basic idea is to slowly but surely pay into your mortgage insurance policy until you’ve accumulated the 20% you would have put towards a sizable down payment.
Altogether, securing the ideal down payment is all about examining your financial and homeownership goals. The right down payment isn’t one size fits all, so explore your options as you consider buying a home and find the route that works best for your bottom line and life plan.
At HelgesonPlatzke Real Estate Group, we are proud to be a member of Eden Prairie’s esteemed small business community. Since 1995, we’ve offered the very best in Twin Cities real estate, earning our community’s trust as the #1 Sales Team in the Eden Prairie area. With over 4,500 homes sold, our staff has both the knowledge and experience necessary to ensure that your home ownership goals are delivered. So, if you’re considering buying or selling your Eden Prairie area home this summer, now is the time to enlist the help of a real estate professional who can help you make the most of this season’s extraordinary market.