Are Low Down Payment Mortgages a Thing of the Past? (private mortgage insurance, loan)
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Hi everyone. I, like many, have a dream of owning a home. I'm a young guy in my 20s, but in my heart I feel ready, but I'm discouraged by the prospect of trying to save 20%.
I have a steady, secure job. I've been working three years since school for the same company, and the company has been growing despite the recession. I have a great salary, no CC debt, about $8K left in student loan debt, and a growing 401(k). Using mortgage preapproval calculators online, and an assumed rate of 5.75% (conservatively assuming I won't get the best rate out there), it seems I can afford to borrow $260K. And looking at what the payments would be, it's the same as I pay now in rent. So I feel "I can afford" a nice place.
BUT I don't have 20% of $260K (that's $52K) saved. I have less than half, actually. And that includes my "rainy day" fund. I'm not fortunate enough to have a mommy and daddy with tons of cash to help me out either. Extending my budget and savings schedule out, it would take me about 6 years to save $52K on top of my rainy day fund. 6 years. I don't want to wait 6 years to buy, and would love to buy within one year or two if possible.
With all of the press about hoops buyers have to leap through in these troubling times, are low down payment mortgages over? Depending on the response I hear here, I'll talk with a lender, but I want to know if it's even worth considering, or if they'll laugh me out of the office.
Does anyone have recent experience? Recommendations for how to proceed if it's even possible? Thanks!
Hi everyone. I, like many, have a dream of owning a home. I'm a young guy in my 20s, but in my heart I feel ready, but I'm discouraged by the prospect of trying to save 20%.
I have a steady, secure job. I've been working three years since school for the same company, and the company has been growing despite the recession. I have a great salary, no CC debt, about $8K left in student loan debt, and a growing 401(k). Using mortgage preapproval calculators online, and an assumed rate of 5.75% (conservatively assuming I won't get the best rate out there), it seems I can afford to borrow $260K. And looking at what the payments would be, it's the same as I pay now in rent. So I feel "I can afford" a nice place.
BUT I don't have 20% of $260K (that's $52K) saved. I have less than half, actually. And that includes my "rainy day" fund. I'm not fortunate enough to have a mommy and daddy with tons of cash to help me out either. Extending my budget and savings schedule out, it would take me about 6 years to save $52K on top of my rainy day fund. 6 years. I don't want to wait 6 years to buy, and would love to buy within one year or two if possible.
With all of the press about hoops buyers have to leap through in these troubling times, are low down payment mortgages over? Depending on the response I hear here, I'll talk with a lender, but I want to know if it's even worth considering, or if they'll laugh me out of the office.
Does anyone have recent experience? Recommendations for how to proceed if it's even possible? Thanks!
Plenty of low down payment options. The lowest being a FHA loan that requires only 3.5% down. This option is available today at 5.0% on a 30year fixed rate loan.
You can go with a conventional loan with 5% or 10% depending on what part of the country you are in.
Plenty of low down payment options. The lowest being a FHA loan that requires only 3.5% down. This option is available today at 5.0% on a 30year fixed rate loan.
You can go with a conventional loan with 5% or 10% depending on what part of the country you are in.
I'll look into the FHA option, thanks for the tip!
Quote:
Originally Posted by sassykat&joe
How about if you buy less house than you can 'afford'? Are there decent houses in stable neighborhoods available for less than $260K in your area?
A 1br-1ba condo averages over $300K in this town. I'm looking in a neighboring town, seeing some 2br-1ba places asking around $275-350K. I'm looking at the lower end of that, obviously. Property in northern NJ isn't cheap, unfortunately.
I would strongly recommend that someone who is still in their 20s, unmarried, only three years wth current employer and has student loan debt avoid spending anywhere near $260K regardless of what the 'affordability calculators' say.
Odds are high that you will want / need to move for business or personal reason in the next 5-7 years and it would be very difficult to so much as break even in that time frame on most real estate deals. The exception would be if you are open to buying place that needs a lot of work and building equity at a much accelerated rate by taking on the fix-up as second job. Over the course of several years it is entirely possible you could build the skills needed to really transform a run down place in a desirable area if things go your way.
Shopping for a property that is move-in ready would be a mistake...
A couple suggestions - you should take into consideration your total debt to income ratio and make sure your monthly credit card, car payment, mortgage, and student loan payments do not exceed 36% of your monthly gross income. Your mortgage alone should not exceed 28-30% of your gross income. That will help gauge how much you can pay for a mortgage. Sounds like you've already got your other savings and retirement goals addressed, so just be sure you won't have to compromise those once you take on a mortgagel
FHA does only require 3.5% down and you may be able to get some help with closing costs from the seller. I think they are changing the max you can get for closing costs from 6% to only 3%, so again, ask your lenders.
A note about mortgage calculators - some do not take into consideration the right taxes and insurance amounts, so be sure you have the right numbers. Also, FHA will roll in PMI (private mortgage insurance which you will need as you don't have 20% down), so that will drive up your payment a little bit too. I think FHA PMI is around 2.25% upfront now, but check with your lenders.
Hope this helps and good luck to you. Definitely do your homework with your lenders before going house shopping. We learned that FHA loan maximums in our county limits our options, which was good to know before we started shopping!
People need to qualify their puritan answers before lashing on this guy. Let's keep in mind that today's 20% was yesterday's 50% down. This is to say, 20% down is a façade. Once interest rates skyrocket, his current savings could very well likely exceed 20% down on the same property, when said property plummets in price consumerate to interest rate (the sole and REAL indicator of market price of a property in the market of cash-broke FICO addicts we call america).
This is to say, it's foolish to dump your liquid on an overpriced matchbox in the age of 4.5% interest rates. You should do the opposite. Or go LOW in price, and be able to insulate yourself from the coming correction. But the other posters are right, you're not likely to come out ahead if you purchase a home in your life situation. Your very motivations in life are more likely to change between 25 and 30yo than the likelihood of staying in that property enough time to break even. If you think interest rates will be still low in 7 years when you'll probably be wanting to sell (like clockwork) I got a bridge to sell ya. You should keep yourself mobile and untied to ticking time bombs (home prices in low interest rate environments). I'd rent. I'd also move the heck out of NJ, but to each their own. Good luck.
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