Ask Our Broker With Peter G. Miller
By Peter G. Miller
CTW Features
Question: We live in one of those high-cost metro areas and the thought of buying a home seems impossible. How do people purchase a first home if they don’t have 20 percent down?
Answer: There’s no doubt some metro areas are both stunningly desirable and as a result stunningly expensive. Even with interest rates around 4 percent, homes in such communities are difficult to purchase, especially for first-time buyers. However, it’s not just high prices that are at work. Two other factors must also be considered.
First, a recent study by Zillow found that homes available for sale are generally more expensive than the median home value of all homes in the same market. This suggests current owners are hanging onto their homes, perhaps because they do not want to lose the low-cost financing acquired during the past few years.
Second, there is a lot of demand, but a limited supply of homes for sale, especially for first time buyers.
“Homes in the lower- and mid-market price range are hard to find in most markets, and when one is listed for sale, interest is immediate and multiple offers are nudging the eventual sales prices higher,” said Lawrence Yun, chief economist with the National Association of Realtors.
But to answer the question, the solution to a large down payment is not to pay it. Instead, the alternative is to speak with real estate brokers and loan officers and ask about financing with little down. Such programs include:
• FHA loans – Generally require 3.5 percent down.
• VA financing – Available with nothing down for qualified vets.
• Conventional Loans with private mortgage insurance (PMI) – Available with 3 percent down.
• Rural Development financing from the Agriculture Department – Nothing down.
Thousands of down payment assistance programs are widely available. DownPaymentResource.com allows borrowers to find programs by location.
As you look at these options, consider that a down payment is just one hurdle among many. For example, with loans that require mortgage insurance, there is a cost for premiums. If a lender is providing a grant, then how does it get its money back? Perhaps through a higher rate?
Also, not all mortgage programs are the same. You might see that one loan option is really attractive, but qualification standards are so tight you may not qualify.
So, a suggestion: Visit open houses in neighborhoods that hold your interest. Whether you like the property or not, talk up the broker and ask how such homes are financed. If you like what the broker is saying, then make an appointment to go through financing options in detail – or ask the broker to suggest an experienced local loan officer.
© CTW Features
Peter G. Miller is author of “The Common-Sense Mortgage,” (Kindle 2016). Have a question? Please write to peter@ctwfeatures.com.
