As you get into your 30s, found “the one” you want to put a ring on, the idea of cementing your roots in one place and calling it home have grown more and more attractive. So, you may find yourself searching homes for sale on local Orange County real estate sites or Zillow a few times a week to obtain your dream home, or more likely a starter home.
The financial dilemma you face is the cost of a down payment is expensive for a home in Orange County neighborhoods of $1 million where you prefer. With the traditional twenty percent down payment, it an initial investment of 200k- which does not include closing costs, property taxes, insurance, and miscellaneous fees.
It is definitely an issue when you know you can afford the monthly mortgage payment.
Government sponsored enterprises Fannie Mae and Freddie Mac have understood this burden for first-time home buyers and those with low-to-moderate income and have put in place programs to help by lowering the required initial investment. They will accept mortgages with down payments with just three percent of the home’s price up to $625,500 in high costs areas of California. The following are among the conditions.
Borrowers need to purchase Private Mortgage Insurance.
Borrowers needs to have a minimum credit score of 620.
Borrowers needs to provide documentation of income, assets, and job status.
Borrowers is required to attend a home ownership counseling class.
Consult with an Orange County Mortgage Broker for more details.
Not to be left out, the Federal Housing Administration additionally insures mortgages with down payments of only 3.5 percent. Using that example, my theoretical down payment goes from an expensive 130k to a totally affordable $21,890 for a $625,000 home.
So, this type of news is simply awesome for home buyers who fit into this group and don’t have the $130,000 down payment, but then again, there are reasons to be careful.
Small down payments can put borrowers more at risk of becoming upside down on their property if home values begin to decline. Ever hear of that happening?
Borrowers are more probable to have higher loan costs for the duration of the loan due to higher interest rates and mortgage insurance (MI).
Low down payment mortgages translates to more risk for lenders and means higher costs for borrowers. Private Mortgage Insurance (PMI) almost always comes with low down payment loans to help protect lenders in the event the borrower defaults on their mortgage. The borrower always pays for this. There are some low down payment mortgages without MI but the rate is higher than a loan with a twenty-percent down payment
Mortgage insurance costs usually vary between $250 up to $1,500 per year. Borrowers are obligated to pay the premium until their property has 20 percent equity which could run you 7-10 years.
For example, if a couple owns a $550,000 home and are paying $375 per month on PMI and were to invest it in a mutual fund that earned an 7 percent annual compounded rate of return, that investment would become $67,263 in 10 years. Any money you pay towards PMI is not growing wealth or helping to build equity.
By coming up with twenty percent down, you can avoid PMI. Over the life of the loan, the total costs are a lot less with a large initial deposit. A small down payment amount oftentimes means you will pay a higher interest rate. Use our calculators to see how much more you’d pay over the course of a 15- or 30-year mortgage than with a higher down payment.
Less money down doesn’t always translate into getting a great deal. However, real estate is about using leverage and tax write-offs for high income earners and large mortgage balances. So, it may work for some borrowers but not for all buyers. Find out which method is more beneficial to you based on your age, income and objectives with a licensed mortgage professional