Low Down Payment – The Latest Norm
Based on a recent study, many borrowers buy with little upfront cash. On average, it is only 6% down for the first time buyers and 14% upfront for the repeat buyers.
Many buyers are making smaller down payments, and this idea is now widely accepted in the marketplace. As per tradition, VA financing doesn’t require money up front, while FHA loans are available with 3.5% down, and borrowers financing with conventional loans are supported by private mortgage insurance which require 5% down.
Lower Risks for the Lenders
There is logic behind all of these programs together with the rise of loan options that require little down. This is because data revealed that there is very little risk on the part of lenders if borrowers choose to finance with lesser down payments.
A recent research discovered that defaults for the loans with 3% to 5% down were just a bit higher compared with financing with 5% to 10% down.
It is also interesting to note that once borrowers get high credit scores and purchased with 3% to 5% down, the default rate will be lower compared to the financing with upfront of 5% to 10%.
How to Make Low Down Payment Offers More Acceptable
If you are trying to bid for a certain property that comes with low down payment, there is a high chance that you need something more in order to make your position much stronger.
Before anything else, you have to be pre-approved by your chosen lender before you start looking for a possible house to buy. This is not just the usual pre-qualification but a real pre-approval. It means that you will be submitting your mortgage application, supply asset and income documentation, and authorized credit report.
The pre-approval letters can differ. See to it that your lender offers one which indicates that you have were given approval for financing. This must state that you can close provided that the property will meet the guidelines of the lender. You might also want your lender to indicate that you have a determined ability to borrow. Custom letters are much better compared to obvious form letters that lack detail.
Next, you or your broker might have to explain to the property seller that during the closing, the owner will be receiving a check. The amount in the check coming from you is going to be the same no matter how the property is being financed, and whatever the amount of the down is.
Although there are sellers that are a bit cautious when they buy a purchase offer with lesser down, now more than ever, this is everything they see. Take note that many purchases, first timers in particular, are making lower down payments and are still successful in buying a house.
Posted by Randy Blakeslee
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