For those looking to purchase real estate particularly first-time home buyers, the notion of a down payment assistance loan where you need very little or no money to close escrow could be a very attractive option. Here are some things to consider if you’re evaluating a low or down-payment mortgage loan…
Down payment assistance loans have become very popular particularly in the last 6 months since interest rates started rising significantly in the summer of 2022. Prior to this getting a purchase offer contract accepted on a down payment assistance loan used to be very difficult because, in the eyes of the seller, a down payment assistance loan might not seem as strong of an offer as someone putting in a down payment on a traditional financing type scenario.
So only recently have we seen a resurgence of DAP loans in the marketplace. Down payment assistance loans want
- 45% debt-to-income ratio
- good job/income
- 620 or higher credit score
Should you buy a house without a down payment? That’s truly the big question, well if you have stocks bonds Ira 401K you may want to keep in the bank for tax planning purposes and you want to buy a home with very little down and you can afford the mortgage payment, one might argue yes on a fixed rate mortgage loan, it could be a good idea if you have a buy and hold strategy with those elements in place. Of course, your income is stable to rising in the future.
As we share this information in 2023 with the average 30-year fixed rate mortgage being around mid- 5’s for this type of loan it’s realistic you might be able to refinance in the next 12 months. A good goal would be to lower your payments by $200- $400 a month or more in the future. In other words, over the course of time, your home affordability in terms of expenses gets bigger if your expenses get lower and your income remains the same or if your income goes up that’s an excellent position to be in financially because it will give you and your family the ability to save money and/or perhaps if you choose to prepay your mortgage and reduce the interest expense on the loan and pay off the house faster.
If your scenario is such that you’re a DAP loan and you’re going to turn around and sell that house relatively quickly say in a year you might want to rethink that strategy as real estate typically takes time to appreciate. So if you factor in all of those elements versus the prospect of renting the home or waiting to see what the market does which no one knows, at some point, you have to make the decision can I afford this if the answer is yes and you have a long term strategy in place and you’re feeling optimistic about your finances, it generally makes sense to purchase a home concerning it’s on a fixed rate mortgage. If you’re thinking about buying a home or just want to get some more information to see what a long-term plan might look like since most people these days are not in a rush to do anything start today by getting a complimentary mortgage rate quote.