When You Cant Put 20 Percent Down on Your Home Mortgage
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by: marciafreeman
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Most people hope one day to own a home of their own. But for some aspiring home buyers, pulling together the "necessary to qualify" 20 percent home mortgage down payment can be more than a little difficult. Fortunately, there are some options out there for those home buyers who struggle to gather together the full 20 percent. Just as with any aspect of a home mortgage, however, there are upsides and downsides to each of these options. And depending on the health of the credit markets at the time you are looking for a loan, lenders may be more or less willing to be flexible with the terms of the mortgage.
PMI (Private Mortgage Insurance)
Lenders usually like home buyers to put down at least 20 percent of the purchase price in order to qualify for a home mortgage with the most favorable terms. If you are unable to pull together that large of a down payment, you may be required to purchase Private Mortgage Insurance (PMI). In the case that you cannot pay your mortgage, this insurance will keep the lender from losing money.
Private Mortgage Insurance generally costs 0.5 percent of the purchase price of the property you are buying. This means that, if you must purchase Private Mortgage Insurance, you will pay more for your home mortgage than you would without PMI. Fortunately, when you have gained equity in your home (youll need 20 to 22 percent) you can request that the PMI be cancelled.
Similar to this arrangement is an FHA loan, which is a loan insured by the government. If you get an FHA loan, it is possible to qualify for a home mortgage even if you have only three percent or more for a down payment. These government insured loans require specific standards be met in order to qualify, and these standards can vary county to county. Check with your loan officer or mortgage broker to see if you are eligible.
80, 10, 10 Home Mortgages
For those want to avoid the expense of PMI, there is another option. This is called an 80/10/10 home mortgage. With this option, you will use a second home mortgage to finance part of the down payment. Essentially, a large mortgage will pay 80 percent of the purchase price of your home. A second home mortgage will pay for a 10 percent down payment. The rest of the down payment, another 10 percent, you will need to pay on your own.
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