As interest rates still remain low many people who have been on the sidelines about buying a house are now coming out of the woodwork. Maybe they’re buying a first home or a move-up home but there is strong demand for housing across the nation in every city and the county throughout the United States. As a result, this is not the market for creativity here is what you need to know…
We are still in an environment that is still incredibly compliant and chock full of red tape. Gone are the days of being able to do creative financing. Working with a lender who has a creative willingness to go the extra is a quality that you should absolutely look for when getting qualified to buy a house. The reality of today’s real estate market is you must have a down payment of the story unless you’re using a VA loan.
Other programs out there allow for no money down such as USDA. USDA, unfortunately, changed their guidelines a few years back and their debt-income ratio acquirement is incredibly stringent. Additionally, there’s no room for error through their guaranteed automated underwriting system otherwise known as Gus for short.
Putting it simply even if you can get qualified for a USDA loan then you have to get into a contract on the house. Getting in the contract on the house when you’re going up against other offers that all have a down payment on paper you look weaker. So it becomes two hurdles versus one hurdle with the hardest hurdle is getting into a contract.
You want yourself as strong as financially possible on paper to the best of generally speaking which coming in with at least a 3.5% down payment on as an FHA affordable 30 year fixed rate. Other programs out there include down payment assistance (DAP) these programs typically have income requirements meaning income limitations, yes you’re hearing that right a lot of people make too many for those programs and the interest rates on those programs are almost always 0.75 to 1% higher in interest rate than the average prevailing 30-year market offered rate. So that means if you’re looking at a 3% 30 years fixed it’s not unreasonable to be paying 4% for a DAP loan.
Now you might think “Gosh if I don’t have a down payment, I can’t get a USDA loan I can’t buy a house.” The reality of it is you’re absolutely right and you shouldn’t be buying a house anyway if you don’t have a down payment. The reason being is because if you don’t have a down payment for a house you probably don’t have several months of mortgage payments in the form of savings in the bank to hedge yourself against financial risk in the future anyway.
Maybe it means biting the bullet and asking for a gift from mom or dad bite the bullet and ask for a gift from a close acquaintance or an employer all of which are eligible resources. Or borrow the money from your 401K which allows you to get in with a down payment loan which will ensure the lowest possible payment available.
If you have a down payment to purchase a house it ensures that your chances of getting into the contract are as high as possible for your unique situation and also will ensure that you get the lowest interest rate and lowest possible monthly payment which at the end of the day is single handily the most important thing.
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