The good news is that the real estate market is making a healthy comeback; home values are rising, and interest rates are dropping. The bad news is, people still believe many misconceptions when it comes to mortgage financing. Homeownership is still considered the “Great American Dream,” but after the nightmare so many people experienced during the financial crisis a decade ago, there is still much hesitation. This hesitation mixed with a plethora of misinformation are the main ingredients that make up the lack of understanding that comes with homebuying.
Myths and misconceptions create some of the greatest barriers among would be homeowners. One of the largest misconceptions that deter people from purchasing real estate is the idea that you need 20% down to purchase a home. Obviously to many, this is a very daunting number as many people (especially first-time buyers) don’t have quite that large of a savings. But the reality is that, in most cases, the minimum required down payment for a primary residence is only 3%-5%! In addition, there are many programs designed to assist with down payment; the problem is that most homebuyers are not aware of them. These programs make funds available to buyers to cover all or part of the required down payment, and you don’t have to be a first-time homebuyer to utilize them!
When it comes to investment properties, the requirements are a little more stringent. However, the good news is that you still don’t need 20% down to purchase an investment property. 15% is the minimum required down payment on a non-owner occupied property. Another deal-saving aspect that many investment buyers may not know about, is that the lender can use potential rental income on the property as qualifying income. Even though the property may not currently be leased, lending institutions will use the market rent, determined by an appraiser, as income to help the buyer qualify for the loan, thus lowering the buyer’s overall debt to income ratio.
As you can see, there are many different niche programs available to all types of homebuyers. Because so many people in the homebuying market have limited information and are inundated with myths and half-truths, it’s imperative to speak with a mortgage consultant that can help guide you in the right direction and tailor financing to your specific needs and goals. Setting yourself up for success is the most important thing when making one of the biggest investment decisions of your life, and that all starts with due diligence and finding the right professional to point you in the right direction.
By Andrew Augustyniak, Branch Manager Loan Officer Prime Lending