When you are getting a mortgage to purchase your first home, the biggest obstacle most people face is saving the down payment. Most people think banks will finance 80% of the purchase price. But there’s a hitch – the banks will order an appraisal (and you’ll pay for it). The bank will actually lend up to 80% of the appraised value. If the appraisal shows the value of the property is more than the selling price, they still only lend 80% of the sale price. If the appraised value is less than the appraised value, they only lend 80% of the appraised value. So if you enter a contract where the selling price is more than the appraised value, you have three choices. One – renegotiate the sale price. Two – cancel the contract and find another house. Three – come up with more cash down.
But if you’re reading this, option three probably won’t work for you. This is about what to do if you don’t have the 20% available. Here are a few options.
FHA Financing. This government backed program may be the right one for you. With VA Financing, you’ll need a minimum of 3.5% down payment. Built into the payment is something called Mortgage Insurance Premium, which insures the lender in case you don’t make your payments. The monthly premium varies according to the amount of the mortgage.
VA Financing. Did you (or your spouse) serve in the military? If yes – you may be eligible for VA Financing with $0.00 down payment and no mortgage insurance.
Both of the above programs are available for detached single family homes. If the property you’re purchasing is a condo, it must be in an FHA or VA approved complex. Most condo complexes are not.
Another option is conventional financing. Depending upon your credit, there are a number of options available if you don’t have the 20% down payment. Speak with your mortgage representative.
Of course, you can always try to borrow the down payment from the First National Bank of Dad.
The last option I’ll mention is rather drastic. Do you really need two kidneys?