When embarking on the home buying process, one of the most overwhelming aspects tends to be the down payment.
However, this large sum of money is not as scary as you may think.
There are many myths about down payments that tend to deter potential homeowners from even beginning the process.
Here, we go over some of those myths to not believe and why down payments are an easier feat than you might think.
Myth #1: 20% down
While it is highly encouraged to put down as much as you can, 20% down is not always required.
This depends on the type of home loan you are taking out.
Paying at least 20% allows you to avoid paying for PMI (private mortgage insurance), which protects your lender if you default on the loan.
If you can’t bring 20% to the table, an FHA loan might be a viable option, requiring only 3.5% down. There is also the option of opting for a conventional loan, but with both of these, you would still be paying PMI.
VA loans typically require no down payment and offer reduced closing costs.
Myth #2: Cash is king
It may seem like your only option to get ahead in a competitive market is to lay down some cash, but this is not always the case.
This may be true for sellers who are focused on a fast and certain closing, but sellers do have other priorities as well!
An all-cash buyer may not be able to offer as large of an amount that you have qualified for. This is where you will have the upper hand.
Additionally, cash buyers often tend to be investors and some sellers may resonate more with selling their home to a family.
Myth #3: Down payment assistance is difficult
Down payment assistance programs do exist, and, with the right lender, they are not as impossible to obtain as you may think.
These programs are usually run locally so teaming up with an experienced local lender is what will make all the difference.
However, you will need to be prepared to meet the qualifications. There are typically specific income and dependency requirements.
Another great option for down-payment assistance is accepting a gift payment from a family member.
To accept this large sum of money from a family member, you have to prove it is not a form of payment that will need to be repaid – like a loan. This can include a letter from the gifter, and your lender may also ask for bank statements from them.
For more information on down-payments and other Real Estate financial advice, check out our blog!