I need a large down payment:
This is probably the biggest misconception. While it used to be true that you needed a large down payment, this is no longer the case. In the mortgage industry, there’s always a great new product just around the corner that benefits the consumer. The latest of these to surface is the “zero down” mortgage. This mortgage seems to suit two decidedly different types of borrowers:
Let’s take a look at them individually:
- If you have great credit, loans have come into existence since January of 2000 that allow you to get a mortgage without having to come up with a down payment. This means that you can borrow 100% of the purchase price of the home, provided that you, the borrower, are contributing a minimum of $500.00 towards the closing costs and escrows. Interest rates on a “zero down” mortgage will run slightly higher than those available to conforming borrowers (those with at least 5% to use for a down payment). The interest rate difference is usually in the neighborhood of .375% higher depending on the amount of the mortgage. (Example, if the going rate was 6.0%, the rate with no down payment would be 6.375%)
- For those with less than average credit, loans are available and are usually viewed as a temporary solution to a short term problem. They can be structured as one loan or as a 1st mortgage (80% of the loan amount) and a 2nd mortgage, (for the remaining 20%) to avoid having to pay mortgage insurance. The loans generally offer fixed rates for 2 -3 years at which time you would be able to refinance. The interest rates are higher than other loans, due to the high risk nature, but are usually determined based on the borrower’s credit scores. In general, scores of 580 or higher are required.
With a Zero Down Payment Loan, you can buy a house NOW, reap the benefits of an interest deduction each year at tax time, and begin to accrue equity in the home of your dreams and if applicable begin the process of restoring your credit.
My credit is not good enough.
Credit challenges often prevent folks from even considering home-ownership. This is a mistake. Even in the worst credit situations, you have to have a starting point. Once we have a loan application and pull a copy of your credit, we can make a quick determination if it’s possible to get you a loan and under what terms (what size down payment, if any, and at what interest rate.)
If we determine that a loan is not possible at this time, or the terms are too cumbersome, we will offer to sit down with you and create a date-specific plan. In this meeting, we will provide you with a credit profile and very specific recommendations to repair your credit. We will then check back periodically to assist you along the way to the end goal of purchasing that home you’ve been dreaming of! (You may need to adjust your initial “wants” into a more realistic “must have” list. In other words, you may need to be flexible.)
I won’t be able to afford a home.
Although it is true that some people do buy homes with monthy payments that are less than rent, it doesn’t happen often. The reality is that when you start your search, you will most likely find that your “wants,” (location, size, condition, school district, etc.) are more than your budget allows. That is at least the initial perception.
Starting with a realistic budget is the first step in backing into a monthly payment you will be comfortable with. When you purchase a home, the interest and property taxes you pay are generally deductible from your income taxes that you pay each April. Therefore, while monthly housing expenses may be higher when you own your home vs. renting, what you save in taxes can make up some, if not all, of the difference. To get a better idea of how this benefit can work for you, speak with your tax preparer.
The other valuable benefit of home ownership is the fact that housing typically increases in value over time. For example, Atlanta housing has appreciated approximately 4% per year from 2000 to 2005. If you had bought a $150,000 house in 2000, it would have increased in value to $180,000 by 2005, a whopping $30,000 increase. This is the most significant reason most people cite for homeownership. When you rent, your landlord is reaping this benefit.
