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Low or No Down Payment Purchase Option.

For some home buyers, the decision of how much money to use as a down payment can be very confusing and hard.

The best route for each buyer or investor really does depend on their situation and personal preferences. The summary below reviews four issues that all home buyers and investors should consider about down payment:

  • Down payment options

  • Benefits of lower down payments

  • Personal considerations

The information provided below is for the purpose of provoking thought and careful consideration about different financing programs available. It is not meant to steer you toward one particular program. It is merely an exposition of the options to consider when purchasing a home or investment property.

Down Payment Options

The “Down Payment Requirements” chapter reviews the minimum down payment needs for conforming loans, as well as some of the available alternatives with non-conventional (FHA loans) programs.

For example, you can purchase a single-family home or condominium with as little as 0% down payment. But there is a price for lower down payments on conforming loans and government: mortgage insurance (often called PMI, private mortgage insurance.

Mortgage insurance is required when the conforming loan amount is MORE than 80% of the purchase price (practical translation: down payment is less than 20%).  However, witn good credit and the coventional loans now allowing 3% down, it may prove to be the better option that FHA

Military veterans who qualify for a VA loan have the easiest route to buying a home with the need for no money down. VA loans can provide up to 100% financing for qualified military personnel and veterans.

USDA loans are loans directed at eligible properties in rural areas and offers a 0% down product. The guidelines are similar to a conventional loan, but offers the perk of placing no money down to get into the home.

The bottom line is that regardless of your credit and income situation, you actually have different options to purchase a home with low or no money down.

Benefits of Lower Down Payments

Though the disadvantages of low down payments seem serious, there are also advantages. Take time to weigh the two and assess which is the best for you.
The chief benefits of lower down payment include the following:

  • Increased liquidity.
  • Higher rate of return. You property’s appreciation will be the same whether you put 3%, 5% or 20% down payment. In fact, your rate of return actually decreases as you make a larger down payment, as discussed below.
  • Opportunity cost. In some cases, the smart investor can make more money from available cash by placing it in other investments.

Personal Consideration

How much to put down should be carefully thought out. You must make your own personal calculation, of the monthly payment that you can afford. Obviously, the I will qualify you for a certain level, based on your income. But that qualification level is often different from the level that you feel comfortable with.

For instance, I may have qualified your income for a monthly mortgage payment of $1,500; however, you may feel that you can realistically afford only $1,200 per month. If that is the case, you must lower the loan amount by increasing the down payment or finding a less expensive property. Or the opposite, you can handle a higher monthly mortgage payment, but choose not to use a lot of your liquid assets to put 20% down.
Consult with me about the best situation for YOU!!!

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