Low Down Payment Mortgages Mean Most First Time Buyers Can and Should Buy

Most first time buyers with jobs and good credit can qualify for a mortgage with a 3.5 percent down payment.

Think you can’t get in on homeownership? Think again! If you have a job, decent credit and you can put together 3.5 percent of the purchase price for your down payment, there is a good chance you can become a homeowner. As a homeowner, you will be able to realize many benefits, including the long-term financial gains that come from owning a home and the tax benefits. Let’s not forget the warm and fuzzy side as well. Your home will be a place to create memories, a place you can paint or fix, create a garden, raise your kids and have a pet or two.

Not that long ago I helped a really great couple buy their first home in Bethlehem. They are in their 20s, out of college for not that long, had good credit and some savings. Their parents were able to help them out a bit. During the process, Megan turned to me and said, “In a million years I never would have thought we would be able to buy a home. Prices were going up so fast, I thought we would have to rent forever.” I think this is a thought shared by many people in their 20s and I am happy to say they are homeowners today! They love their house and added a puppy to make it even more of a home!

Recently there has been some chatter about lenders doing away with low down payment loans in the future. A minimum of 20 percent down is the number people think they need to buy a home. This is seldom the case, nor is it the norm. While we are seeing a rise in cash buyers, mortgages continue to be the primary way to finance a home. FHA loans--loans backed by the government--are still readily available and require as little as a 3.5 percent down payment with closing costs being worked into the payment. An FHA loan does require you to escrow your taxes and insurance as well as pay mortgage insurance, but it’s worth it to become a homeowner.

Let’s talk about an example so it makes "dollars and sense." If you were to purchase a $149,000 home you would need just under $5,300 at closing. Your mortgage payment would be just under $1,200 a month. I’ve checked some rental places and this figure is in line with some nice upscale rental places. Yes, it’s a fixed rate, 30-year term and includes principal, interest, taxes, insurance and your mortgage insurance. So after seeing those numbers, homeownership should be looking very enticing.

There is some additional chatter out there about reducing term lengths for interest rates, but right now all is still good, so take advantage while you can. One other notable item: low down payment loans are NOT just for first time buyers. Anyone can apply for an FHA loan regardless of the number of homes they have owned in the past. This will make moving up that much easier and the more move-up buyers, the better the market becomes!

Since the number of transactions is increasing both locally and nationally, many experts agree that 2011 may be the best year real estate has experienced in quite a few years. The same experts are predicting that 2012 will be the year we may see appreciation of our homes. They do not expect there to be large gains in appreciation, but at this point even a small gain is better than nothing, and this is predicted to be the start of the next wave of appreciation. This is another key reason why you may want to get into homeownership now!


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