While home ownership is still the American dream, many believe it to be out of reach because of financial requirements to secure a mortgage. The industry standard is that a home buyer must provide 20% of their mortgage amount as a down payment. Issues arise when many who may have no problem qualifying for a mortgage otherwise simply don't have the savings equal to a down payment. The truth is that there are many buyers in the same position and down payment help is available for some home buyers. Here are just a few down payment assistance options.
Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) is one of the most common forms of down payment assistance. PMI is simply added to your mortgage, and you pay it each month along with your mortgage payment until you have reached the 20% equity threshold. Once that is reached, PMI can be most likely be discontinued. PMI allows buyers to reach the required threshold for a conventional mortgage while providing protection for the lender.
Gift Letter for Down Payment Help
Gift letters from family, friends, or employers are increasingly popular methods of securing down payment help for a mortgage. There may be tax benefits for the giver and, depending on the amount, the home buyers may avoid having to purchase PMI. Funds given as a gift need to be stated as such in writing so that they are not factored into your monthly expenses by the mortgage company.
State and Federal Loan Programs
Not only are there state and Federal programs that can help with your down payment on a home, but many programs do not require the industry standard of 20% down for a mortgage. Some VA and USDA mortgages have no down payment requirements while FHA mortgages require just 3.5% down for certain qualified buyers. Many local governments offer bonds or grants in conjunction with community development programs to provide down payment assistance to home buyers as well.
Assistance options vary by location and a number of other factors. To be eligible for some down payment help programs, buyers must meet certain requirements; either related to income, home location, or as a member of a certain group. If you are interested in buying a home and seeing what it takes to get pre-approval or down payment assistance on a mortgage, schedule an appointment to talk to one of our experienced lenders today!