When You Cant Put 20 Percent Down on Your Home Mortgage
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by: marciafreeman
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Almost everyone dreams of one day owning their own home. But for some aspiring home buyers, pulling together the "necessary to qualify" 20 percent home mortgage down payment can be more than a little difficult. Fortunately, there are some options out there for those home buyers who struggle to gather together the full 20 percent. Just as with any aspect of a home mortgage, however, there are upsides and downsides to each of these options. And depending on the health of the credit markets at the time you are looking for a loan, lenders may be more or less willing to be flexible with the terms of the mortgage.
PMI (Private Mortgage Insurance)
Lenders usually like home buyers to put down at least 20 percent of the purchase price in order to qualify for a home mortgage with the most favorable terms. If you are unable to pull together that large of a down payment, you may be required to purchase Private Mortgage Insurance (PMI). If you find yourself unable to pay your mortgage, PMI protects the lender from losing money.
In general, PMI will cost around half of a percent of the price of the property you are purchasing. If obligated to purchase PMI, the final costs of your home mortgage will be higher than they would otherwise. Happily, after you have built up a sufficient amount of equity in your home (20 to 22 percent), you can request to cancel the Private Mortgage Insurance.
A variation on this arrangement is an FHA loan, which will be insured by the government. If you get an FHA loan, it is possible to qualify for a home mortgage even if you have only three percent or more for a down payment. These government insured loans require specific standards be met in order to qualify, and these standards can vary county to county. Check with your loan officer or mortgage broker to see if you are eligible.
An 80/10/10 Home Mortgage
For those want to avoid the expense of PMI, there is another option. They can go for an 80/10/10 home mortgage. With this kind of home mortgage, you obtain a second mortgage to cover the rest of the down payment. Essentially, a large mortgage will pay 80 percent of the purchase price of your home. A second home mortgage will pay for a 10 percent down payment. The rest of the down payment, another 10 percent, you will need to pay on your own.
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