March 05, 2019
How to Buy a House if You Can’t Afford a Down Payment
If there’s one unfortunate truism about the financial health of American families, it’s that, these days, a startling number of us are not saving money. As of 2017, some surveys indicated that more than half of Americans had less than $1000 socked away, and, indeed, nearly 40 percent had saved nothing at all. Needless to say, this results in a vast swath of our population who cannot now—and who perhaps may never manage to—muster the recommended 20 percent down payment on a home. Given an average house price of around $250,000, that would mean having around $50,000 ready to go.
Does not having savings available for a down payment mean homeownership is completely out of reach?
Well, for a portion of this subset, the answer is, sadly, yes. But some among this number may own a home yet. It all depends on the rest of their financial situation, and how much extra cost they are willing to take on month-to-month.
While having a large down payment available does confer a number of very positive benefits to those who can manage it—like instant equity and smaller monthly payments—it is not, strictly speaking, a requirement. There are other options available.
- FHA Loans – Federal Housing Administration loans amount to 22 percent of all loans in the United States, and permit borrowers to put down as little as 3.5 percent. But there is the added cost of mortgage insurance, designed to protect the lender in case a borrower should go into default, which for these loans requires a monthly payment for the entire life of the loan (whereas in standard loans, mortgage insurance payments can be cancelled upon the accrual of enough equity). On top of FHA loans, there are other government-backed loans programs with various levels of specificity as to applicability, like VA loans and US Department of Agriculture loans.
- Low Money Down Loans – Some banks offer conventional loans with down payment options as low as 3 percent. These do require better credit than sometimes permitted by FHA loans, and they generally come with the requirement of carrying mortgage insurance (which can be cancelled after paying off 20 percent of the loan). Where such loans are available without the requirement of mortgage insurance, you can expect to pay a (sometimes significantly) higher interest rate.
- Piggyback Mortgages – Here you take out a second mortgage—really a Home Equity Line of Credit (HELOC) to cover the down payment itself. The interest rate on this portion will generally be higher, and likely will adjust alongside the market.
- Down-Payment Grants – Available to lower- and middle-income Americans, these grants assist would-be homeowners in making up the difference between their existing savings and whatever may be required in a down payment. Often these are state-based or city-based programs.
Whether you’ve saved enough for a down payment or not, at Topouzis & Associates, P.C., we not only offer the services that ensure your title to a new property gets conveyed clear of defects, we supply purchasers with Owner’s Policies of title insurance. Contact us if you want your property transfer in Cranston, Rhode Island; Springfield, Massachusetts; or Miami, Florida to go through without a hitch—both before and after closing.