by Michele Lerner
Recent media reports about down payment requirement have been scaring first-time homebuyers right out of the housing market.
As 2008 wound to a close, some real estate experts were saying on television and in newspaper articles that “nobody can get a loan unless they have a credit score of 800 and a down payment of at least 20%”.
Yet plenty of homebuyers with credit scores in the high 600’s and up are being approved for mortgages every day. And borrowers with credit scores lower than that are finding that they can quality for loans, too, especially FHA loans(Federal Housing Administration) backed by the government.
As to the down payment, a simple math equation can be pretty daunting to young potential homebuyers: a 20% down payment on a $250,000 home is $50,000. Quite a lot to save by age 30 or so!
But the truth is: 20% DOWN PAYMENTS ARE NOT MANDATORY. PLENTY OF LOAN PROGRAMS ARE AVAILABLE FOR BUYERS WHICH REQUIRE A LOWER DOWN PAYMENT. A 3.5% DOWN PAYMENT ON A $250,000 HOME IS $8,750, A MUCH MORE ACHEIVABLE SAVINGS TARGET.
The National Association of Realtors (NAR) put out a press release to clarify some of the misconceptions about down payment requirements.
- An individual may be required to put down 20 percent based on that person’s financial situation. But that is not an across-the-board requirement for all borrowers.
- A borrower who puts down less than 20 percent is required to obtain mortgage insurance.
- Even in a declining market, a borrower is required to make at least a 5 or 10 percent down payment.
- FHA requires a 3.5 percent down payment by borrowers, so long as they meet a 31 percent housing cost-to-income ratio. In other words, anyone who stays within their budget and who can afford a 3.5 percent down payment (even with family help) can become a homeowner.