Can I Get a Mortgage With a Discount of 2 to 3%?
Yesterday we talked about how much to put on your first home and what discount mortgage points are . Today we will look at another mortgage question, in particular from s omedouche :
How do people buy a house? In particular, I know that a few colleagues (who I must assume are getting comparable salaries and buying houses at prices comparable to what I am looking at) buy houses and invest only two to three percent and somehow get a mortgage a loan that won’t bankrupt them. Meanwhile, I figure the numbers over and over, accumulating a full 20 percent on my down payment, and I still can’t find a home with an interest rate or monthly mortgage that seems doable.
Somedouche could possibly lower home values by two to three percent, although the average is slightly higher – the National Association of Realtors said it was 11 percent in 2016 as I reported yesterday, while Attom Data Solutions rated it at six percent. In fact, a 20 percent decline would be more unusual these days than three to five percent.
If you’re wondering how this is possible, there are 1) mortgage insurance, which was worth $ 760 billion in 2016 , and 2) various programs that require significantly less than 20 percent. In fact, the “20 percent” figure we have in our head is probably due to the fact that you need PMI for anything below that. But this, of course, is not necessary, and in fact, your money would be better spent elsewhere. “I wouldn’t even recommend saving that much,” says Matt Ishbia, President and CEO of United Wholesale Mortgage. “Access to your money is the key to success.”
Okay, two percent is unlikely. But one option is an FHA loan that requires you to pay 3.5%. Credit requirements are less stringent than for other types of loans. You will be charged a “mortgage insurance premium of 1.75 percent of the mortgage amount” based on the bank rate and many other requirements . But your down payment doesn’t have to be huge. ( Bankrate also lists some other programs for veterinarians, military personnel, and those eligible for the USDA Rural Mortgage Guarantee Program.)
Alternatively, borrowers can pay as little as three percent with private mortgage insurance, which has slightly stricter credit requirements than FHA loans. PMI usually costs between 0.5 and one percent of the original loan amount each year and varies depending on the loan, the lender, and your credit history. But the blessing is that you pay less upfront and can use the remaining funds to tidy up your new pad or invest in something over the long term.
Also, if you owe less than 80 percent of the mortgage value (in other words, you’ve reached that 20 percent), you can cancel your PMI (once you reach 78 percent, it should automatically cancel). When you get an FHA loan, you need to refinance a non-FHA loan to get rid of your insurance.
To get the best rate, contact an independent local mortgage broker who can help you compare rates and find the right one for you.