Studies show many would be home buyers don’t take the plunge for a variety of reasons, not the least of which is the amount of down payment required. So by a show of hands, how many think the requirement is 20%?
Congratulations, you’re in the majority.
Mortgage Insurance Required Above 80% LTV
Though in existence since the late 1800’s, it wasn’t until the 1950’s that mortgage insurance as we know it came into use. Designed to minimize the lender’s risk, mortgages that are more than 80% of a home’s value require it. Thus the reason many think 20% is the down payment requirement, it’s not.
Low Down Payment Programs
In fact, the majority of owner occupant loan programs require less than 5% down (Conventional). FHA only requires 3.5% down where VA/USDA loans require 0% for a down payment!
Closing Costs and Prepaids
In addition, ALL loans will have closing (title, origination, etc) and prepaid costs (taxes, hazard insurance, interest and other expenses), usually totaling 2% – 3% of the loan amount.
How Much Will YOU Need
Doing the math, a qualified borrower will need anywhere from 2% – 8% of the purchase price to cover the down payment, closing costs and prepaid items discussed, or up to $8,000 on every $100,000.
Down Payment Assistance
With many programs that offer to help with down payment and closing costs up to 4% of the purchase price, the truth is many borrowers will have the ability to buy a home with as little as zero out of pocket costs!
Visit this link to see what down payment assistance you may qualify for! http://bit.ly/2oEm058
So what are you waiting for?! Contact your favorite real estate professional for a no cost, no obligation consultation today!
Fannie Mae recently released their “What do consumers know about the Mortgage Qualification Criteria?” Study. The study revealed that Americans are misinformed about what is required to qualify for a mortgage when purchasing a home.
A mortgage loan professional starting in 1997 and a licensed real estate broker today, it should come as no surprise I am a huge proponent of real estate. Using lease options, land contracts and traditional financing, I have personally experienced the joys of home ownership, building (and losing) equity and, in inaugurating many into the club, have also shared this joy with others.
For many others, getting started is no easy undertaking, starting with financing, especially when it comes to using conventional, FHA/VA or similar institutional financing. The three C’s of credit (character, capital and capacity, not necessarily in that order) requires would be home owners (investors) submit to an increasingly thorough examination of DTI, employment history, credit use…that read like lions, tigers and bears, right? Yes, not only can it be brutal, but also an exercise in futility for many, especially the non-owner occupied type.
Enter hard (and private) money, which mostly and sometimes only cares about the property…what it is or will be worth in the future in comparison to how much it’s selling for today, that is. They don’t call it hard money for nothing, as the cost and fees (double-digit interest rates when owner-occupied is in the low single digits, 4% of the loan amount, application fees) associated with this strategy can hurt yet, so can a vaccine when you tense up in anticipation. Right? But when in the hands of a learned professional, look away and, not only do you barely feel a thing, it’s all better in no time, except for when you get sick from it, but I digress.
Take the median home, $240k in the Colorado Springs market. Being short-term financing (3 – 12 months, max), held for 12 months the total interest at 14% is $33,600. Add 4% in points and 10% in holding costs, and the cost is an admittedly hurtful $100,800 AKA a real kick in the pants. You might ask, what logical investor would want to pay $100,800 in fees and costs to acquire a $240,000 asset? One who understands the time value of money, that’s who.
You’ll need to look at this differently to understand. But first, let me take this opportunity to mention the most important factor here is the need to be working with a motivated (unemployed, bank, divorced, estate, probate) seller because it won’t work otherwise. What hasn’t been mentioned is this asset was purchased for say, 70 cents on the dollar ($156k) or less. I also left out the part that factors a shorter holding time, say 3 months or just enough time to rehab the property at a cost of about 10% of purchase price say, $16k. Effectively cutting time and fees by 75%, we now have a cost of funds equal to roughly $41,200 including rehab. Get the picture? We “just purchased” a $240,ooo asset for $156,000, added $41,200 in costs and fees and came up with an “investment” of $197k, theoretically netting $43,000 in three months. What’s so hard about that? By the way, and where the intrinsic value is different from that of a non-owner occupied investor, any home owner who has looked at a truth in lending statement as they were called will say, “what a deal” as they look at the total interest paid during the life of a 30 year loan, even at 4%!
Of course, the process, including costs and fees has been simplified tremendously but the scenario is real and it works.
Interested in getting started? With our experience and relationship with lenders at every spectrum, including hard money financing at up to 100% of ARV (after repaired value), we are uniquely qualified to you invest in real estate. Just use the contact form in the lower right to get started.
It’s not that the sky’s falling, but that it’s important to illustrate the affect rising interest rates has on home affordability so buyers who are on the fence know the answer to that million dollar question, what is the “perfect time” to buy.
It appears we are in the best of all worlds – the economy has improved, home prices are rising and interest rates are at historic lows. So, why not now? To answer that, let’s look at the effect a 1% change in interest rates will have on purchasing power.
According to the Pikes Peak Association of Realtors, the Average Home Price in the Colorado Springs market as of end of month August 2015 was $273,381. With the Average 30 yr Mortgage in the Colorado Springs market currently at 3.91%, amortized over 30 years a monthly payment on this average home is $1,291 per month, not including taxes and insurance. Whereas, a payment for the same house at 4.91% is $1,453, a monthly increase of $162 or $58,165 in added payments over the life of the fully amortized loan. And if affordability is an issue, consider this increase means less house for the money, as the max purchase price becomes $242,973 in this scenario.
Buying a home is no small decision with many factors to consider. However, those who are ready, willing and able to buy might want to consider pulling the trigger sooner than later as, be it in 2015 or later, interest rates will rise. To illustrate its inevitability, this old goat was originating mortgages with interest rates in the mid to high teens back in the 90’s. Yes, before smart phones.
Interested in buying or selling a home? Use the form to the right to contact us for a no cost, no obligation consultation. We look forward to serving you!
As a parent of three young men, I can tell you firsthand that a “Good School” is more than one that provides a quality education. Though the foundation, a good school also understands the imperative to instills the tenets of good citizenship, inclusiveness, civility, humanity and more.
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