Most people dream of the day when they can finally buy their own home. Homeownership remains one of the highest goals for many people because it includes many benefits. When you”re home, you enjoy a sense of security and belonging that simply cannot be found with renting. For many people, buying a home represents personal and financial success.
There”s also a lot of personal satisfaction in living in a home that you own. Real estate is still considered a valued investment which can have many financial advantages and tax benefits. The amount of interest you pay on a home loan and the real estate taxes you pay on your home are among the few major federal tax deductions. Owning a home is the primary way most people build wealth.
Despite the many benefits of owning a home, there are still countless people for whom this goal remains slightly out of reach. For more and more families, saving the money for a down payment is the biggest obstacle to homeownership. Many people mistakenly believe that you have to come up with a down payment equal to 20 percent of the price of a home.
Traditionally, lenders have required that home buyers be able to make a down payment of at least 20% of a home”s purchase price to get a home loan or mortgage. However, mortgage lenders will grant home loans to qualifying home buyers with a down payment of as little as 3 to 5 percent of the purchase price, if the mortgage is insured.
In fact, home loans with down payments of less than 20% are increasingly popular. They are called “low down payment mortgages.” HUD homes are usually available with low down payments and attractive financing. This is good news for the millions of home buyers who are finding it difficult to save a large down payment, especially for their first house.
There are few ways to make a low down payment possible. Simply put, mortgage insurance protects the mortgage lender against financial loss if a homeowner stops making mortgage payments. Lenders usually require insurance on low down payment loans for protection in the event that the homeowner fails to make his or her payments.
When a homeowner does not make mortgage payments, a default occurs and the home goes into foreclosure. Both the homeowner and the mortgage insurer lose in a foreclosure. The homeowner loses the house and all of the money put into it. The mortgage insurer will then have to pay the lender”s claim on the defaulted loan.
For this reason, it is crucial that the family buying the home can really afford it — not only when they buy, but throughout the time period of the loan. Although the cost of the mortgage insurance is paid by the home buyer, or borrower, the mortgage insurer works directly with the lender. Mortgage insurance is available to commercial banks, mortgage bankers, and savings & loans, and all of which offer mortgage loans to home buyers.
The minimum effective down payment required by FHA is less than 3 percent. For single-family homes, there is a limit on the loan amount that varies according to geographic area. Anyone can apply for FHA insurance despite common myths. However, there are sales prices limits, so check with your lender. The VA program is limited to qualified, eligible veterans and reservists. The USDA Rural Housing Service insures loans for the construction and purchase of homes in rural communities. This program is very specialized, so contact your lender for the details.
With the wide variety of loans available, home buyers have the freedom to choose the type of loan that best suits their needs. Early on in the home-buying process, it is a good idea to meet with several lenders to compare the types of mortgages they offer and shop for the best price and terms. Best of all, working with a mortgage insurer can be very easy — whether your loan is insured by the FHA or a private mortgage insurer — because your lender handles all of the arrangements. By making lending money to home buyers safer, mortgage insurance helps more families get into homes of their own.
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