Unless you can buy a house in cash, you will need to get financed for a mortgage.
Buying a home is complicated, expensive, and sometimes stressful, especially for buyers who can’t swing a “traditional” 20% down payment.
So before you can get serious about buying a home, you must ensure you’re a feasible candidate for a loan with your current credit score, income, finances, and debt ratios. (If not, you’ll need to implement plans to improve it.)
But first, let us start with the down payment. Houses in San Diego are expensive, and if you had to put down 20% on a home that cost $850,000, that would be $170,000!
Who has that kind of money?
A lucky few.
Most of us don’t have that money, but we can come up with $29,000.
The government backs certain loan types to make homeownership accessible for first-time home buyers.
These gov’t subsidized loans have low (3-5%) down payment requirements.
Here are a few:
- San Diego FHA loan: 3.5% down payment
- Freddie Mac Home Possible loan: 0–5% down payment
- Fannie Mae HomeReady loan: 3% down payment
Other loan programs have no down payment requirements at all, including:
- VA loans: 0% down payment
- USDA loans: 0% down payment
This is just a tiny sampling of what’s out there.
If you wanted to purchase a house listed for $850,000, a down payment of $29,750 is what you would need based on the FHA loan requirements.
In addition to the down payment, you’ll need to make sure you have funds available for buyers closing costs.
Sometimes, you can request the seller to pay for your closing costs as a condition of purchasing the home.
This is a common practice in a buyers’ market, but it isn’t the best idea if you are trying to compete in a seller’s market.
The first place to start
Once you know your available money, it’s time to meet with a loan officer. A loan officer will understand all the available loan types and their requirements.
You can do the research yourself. First, check out our article on the types of home loans. This will give you a good start, but eventually, you’ll need to speak with a loan officer to get a better idea of what loan program you can qualify for and the amount of money you need.
For example, although you can put down only 3.5% for a home that costs $850,000 in San Diego, an FHA loan in Texas only allows a 3.5% down payment with a max purchase price of approx. $420,680.
In Los Angeles, you can go up to $970,800.
Thats a major difference.
Also, USDA loans have income limits, and the Home Possible and HomeReady products can only go up to a $715,000 loan amount, anything higher is considered a jumbo loan which has it’s own requirements.
It would be impossible for you to know all these things, but you know who does?
That’s right, a loan officer.
A down payment is just one part of a mortgage: Between interest rates, homeowners insurance, PMI, closing costs, mortgage payments, and mortgage underwriting, there are plenty of other (very expensive) moving parts to consider.
But if a 20% down payment has been your main homeownership obstacle, at least now you know you have other options.
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