Home Mortgage Down Payments
Most people hope one day to own a home of their own. But for some, gathering the “required” 20 percent down payment to qualify for a home mortgage can be daunting. For borrowers who are concerned about having a smaller down payment there are some mortgage options to consider. But as is true for pretty much every element in obtaining a home mortgage, each option has its pros and its cons. And whether or not lenders will be willing to work with your on the terms of the home mortgage and down payment depends heavily upon the condition of the market at the time you apply.
PMI (Private Mortgage Insurance)
Lenders usually like home buyers to put down at least 20 percent of the purchase price in order to qualify for a home mortgage with the most favorable terms. If, however, you cannot make such a large down payment, a lender may require that you obtain PMI, or Private Mortgage Insurance. In the case that you cannot pay your mortgage, this insurance will keep the lender from losing money.
Private Mortgage Insurance generally costs 0.5 percent of the purchase price of the property you are buying. This means that, if you must purchase Private Mortgage Insurance, you will pay more for your home mortgage than you would without PMI. Fortunately, when you have gained equity in your home (you’ll need 20 to 22 percent) you can request that the PMI be cancelled.
A variation on this arrangement is an FHA loan, which will be insured by the government. If you get an FHA loan, it is possible to qualify for a home mortgage even if you have only three percent or more for a down payment. Because FHA loans are insured by the government there are specific criteria for qualification that can vary by county. Check with your loan officer or mortgage broker to see if you are eligible.
An 80/10/10 Home mortgage
Home buyers who do not wish to incur the expense of buying Private Mortgage Insurance have another option. They can go for an 80/10/10 home mortgage. With this kind of home mortgage, you obtain a second mortgage to cover the rest of the down payment. 80/10/10 works more or less like this: your first, larger mortgage will cover 80 percent of the cost of your home. A second home mortgage will pay for a 10 percent down payment. The rest of the down payment, another 10 percent, you will need to pay on your own.