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What Percent Is The Best Down Payment?


Deciding what down payment to put on a home is one the first decisions to decide when choosing a home loan. This determines the amount of money the borrower will have to part with, how much house a borrower can afford, and it also determines whether the borrower will have to pay monthly mortgage insurance, or upfront mortgage insurance.

Of course, your financial situation will be a big determining factor for which scenario you can choose.

A 3.5% down payment is the most common, especially among first time home buyers. It’s the smallest amount a borrower has to part with. However, when doing a 3.5% down payment with a FHA loan, the borrower will have added costs consisting of upfront mortgage insurance, which is added to the loan balance, as well as monthly mortgage insurance. This ultimately increases the monthly mortgage payment.

The other option is to go the conventional home loan route and parting with a minimum of 5% down. In order for this scenario, credit scores must be good and the home loan has to be under $417,000 according to Fannie Mae and Freddie Mac guidelines. Monthly mortgage insurance is still added to the loan, but it is significantly less than the 3.5% down payment.

A borrower can also put 10%-20% down with a conventional loan in order to avoid mortgage insurance altogether.

Now, keep in mind there is not “wrong” down payment. It is all based on your financial situation, what is available in your savings for a down payment, and how much house you can afford. The main goal is for the borrowers to understand the different loan options available and choosing what works best for their circumstances. Discuss these options with a mortgage broker for more personalized assistance based on your financial situation.

Tips on Buying a Good Home


1. Buy a Home You Can Afford

Make sure when choosing a home that you are comfortable with the mortgage payment. You do not want to purchase a home in a price range that will leave you scrounging for money each month just to make the payment. You need to keep in mind the other payments you still have obligations towards, such as a car payment, student loans and other expenses that add up.

A certified mortgage planning specialist analyzes your debts and will inform you on what a reasonable and realistic house payment is based on your scenario.

2. Make Sure You Can Stay Put

You don’t buy a home with the intention of moving right away. You should only purchase if you are planning on staying put for a few years. A home is an investment. If you are not able to make the commitment of staying in the home for a few years, then you may want to reconsider purchasing at that moment.

3. Get Pre-approved Before Looking

Without a pre-approval from a mortgage broker, you really are not in any position to look at homes. A pre-approval secures the fact that based on your income, assets, debts that you will qualify for a specific price range of homes. You should always seek a pre-approval from a lender to ensure you are not wasting your time, or a realtor’s time in looking for a home.

4. Know Your Credit

If you have issues on your credit report, you want to start getting those fixed before trying to buy a home. You need to also make sure you are current on all credit line payments and not maxing out your credit lines. Also, when you are in the middle of purchasing a home, DO NOT open new lines of credit. You do not want to open any new lines of credit, because that can affect your ability to purchase a home.

5. Do Your Homework

More often than not, homebuyers fall in love with a neighborhood but haven’t done their homework. You need to find more information about the taxes for that area as well as if there is an HOA (Home Owner’s Association) fee. These two things can really increase your monthly payment and you need to be aware of the full cost of the home. You not only have the mortgage payment, but you will also have to pay taxes, insurance and possibly an HOA fee.

A certified mortgage specialist has access to this information for any home on the market. Ask them to research a home in that area to find out what exactly you will be paying.

 6. Choose an Area With A Good School District

If you are just purchasing a home and have small children, or planning on having children, you want to make sure you choose an area that has a good school district. Since a home is an investment, you should only purchase if you are planning on staying a while. You will want a good school district, so do some research on the area before purchasing.

7. Start Saving Your Down Payment

Depending on what loan program you are able to purchase under, you will need to bring in a different down payment. Majority of homebuyers tend to put down anywhere between 3.5 percent to 20 percent of the home price. Start saving the down payment so when it’s time to make an offer on a home, you have the strength of a solid down payment.

8. Work With Respected Professionals

Buying a home is not a simple process, so you need to make sure you are working with the best people to help you through the process. This should be a fun and exciting time, but there will be some stressful moments. Do your research, read reviews, and choose a mortgage professional that knows what they are doing, and has the history to prove it. If you don’t have a real estate agent, your mortgage broker will more often than not guide you to a great real estate agent that will meet your needs.

California Homebuyer’s Downpayment Assistance Program


Are you a “first time homebuyer”? (meaning you haven’t owned a home in the past 3 years in your name?)

Would you buy a home if you could afford the down payment?

This new program called California Homebuyer’s Downpayment Assistance Program (CHDAP) just may be what you are looking for!

The new California Homebuyer’s Downpayment Assistance Program (CHDAP) is designed to help first time homebuyers who have low-to-moderate income purchase a home.

How Does The Program Work?

When you purchase a home through FHA you have to put 3.5% down on whatever the sales price is for your home. For example, if you purchased a $200,000 home, your down payment would be $7,000.

Well with this new program, first time homebuyers only need to bring in 1% of the purchase price. That is 0.5 percent for the down payment and 0.5 percent for the closing costs.

Using our previous example, for a $200,000 home, $2,000 is needed for a down payment from the buyer. The additional $5,000 that would have been needed with FHA, is now being placed as a second mortgage.

Under this program the buyer will have a first mortgage of $198,000 ($200,000 minus $2,000) and then a second mortgage of $5,000 for the “gift” as a down payment.

With CHDAP, the second mortgage does not need to be paid. It is required to only be paid if the buyer decides to sell the home or refinance. Otherwise it is known as a “silent mortgage”. However, we advise homebuyers to pay the second mortgage as well. In this scenario it is approximately $30 more a month to pay both mortgages.

Speak with a mortgage professional for further detailed information

Borrower’s Eligibility

  • To be eligible for the CHDAP homebuyer’s assistance, you MUST be a “First Time Homebuyer”. This means that the borrower cannot have owned a home in the past three years.
  • The home purchased by the borrower must be the primary resident
  • The borrower will need 3 current consecutive years’ tax returns
  • The property must be owner occupied for the term of the loan or until the property is sold.

Speak with a mortgage professional for further detailed information

Borrower’s Income Limits

There are income restrictions for the CHDAP program because it is designed to help those with low-to-moderate income.

The income limits vary on what county the home is being purchased in addition to the number of dependents.

Example for Southern California Areas using FHA as first mortgage:

 

 

 

 

*To view other county income requirements for FHA click here

*To view other county income requirements for Conventional click here

Speak with a mortgage professional for further detailed information

Borrower’s Down Payment Contribution

The borrower is required to pay from their own funds a minimum of 1% of the loan amount or $1,000 (whichever is greater).

Speak with a mortgage professional for further detailed information

Borrower’s Credit Requirements

A typical credit requirement for a FHA mortgage with a LTV of 95% (meaning you are financing 95% of the home) is 640.

Any loan that is financing 95.01-100% of the home with CHDAP will have different credit requirements.

With the program CHDAP the credit requirements vary depending on the level of your debt-to-income ratio. Reference the chart below: 

 

 

 

 

 

Speak with a mortgage professional for further detailed information

Properties Allowed For Purchase

  • Single Family Units
  • Agency Approved Condominiums
  • Planned Unit Developments (PUDs)
  • Five Acres Maximum
  • Flips (ONLY 91+ days or more)

Speak with a mortgage professional for further detailed information

If you are a first time homebuyer, don’t miss out on this great opportunity using the California Homebuyer’s Downpayment Assistance Program.

9 Tips to Help You Save For a Down Payment!


Wondering how you are going to afford a down payment for a home? This is a common concern for homebuyers, but we want to provide you with 9 tips to help you save for a down payment. You’ll be able to buy the home of your dreams much sooner.

1. Save

This seems obvious, but the second you start thinking of wanting to buy a home, why not start setting aside money on a monthly or weekly basis. You will see how quickly it adds up. You can enroll for an automatic savings plan with your bank or have a portion of your paycheck get automatically transferred to you savings.

2. Borrow the down payment from your retirement plan

Check the provisions of your retirement plan. You can borrow funds from a 401(k) plan for a down payment or make a withdrawal from an Individual Retirement Account. Be sure you understand the tax consequences, repayment terms and/or possible early withdrawal penalties.

3. Move

Obviously this option is only available for people who already live in a home. By selling your home you may be able to save additional funds if you can move into a less expensive house.

4. Reduce other higher interest rate debt

Debt is stressful, so if you are capable of paying off credit cards with high interest you will be able to start saving. Yes, at first your savings will take a hit and reduce, but the money you will save from higher interest rates will pay-off in the long run. Trust me!

5. Make a deal with the seller

You would be surprised but in some circumstances it is appropriate to ask the seller to carry a second-mortgage to cover your down payment. Typically, you will pay a slightly higher rate for this second mortgage.

6. Sell some investments

7. Get a second job and save your earning

You’ll be putting in extra work but it will be worth it in the end! Focus on your long term goal and understand it’s temporary.

8. Skip a year’s vacation

I know, I know… this seems awful, but try doing a local vacation that does not cost as much money. Also, keep in mind it’s only one year you are giving up a vacation. However, that will put you closer towards achieving your future goal of a new home (where you will make many more memories).

9. Gift from family

Parents and other family members are often anxious to help children buy their first home and may have the means to give you a gift of money for a portion or all of your down payment.

For other down payment tips you can visit our website.

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