Applying For A Home Mortgage

Its not always easy to save up enough to make the traditional 20 percent down payment on a home. The good news is that there are quite a few low down payment mortgages available nowadays. When deciding on a mortgage plan to go for however, you should determine if 20 percent is indeed the standard rate.
The fact is that most mortgage lenders do require you to make the 20 percent down payment at the minimum. If you cannot manage to make the 20 percent down payment, you will probably be required to purchase Private Mortgage Insurance or PMI. This insurance typically costs about one half of 1 percent of the purchase price of the home and protects the lender in the event that you should default on the loan. Your overall mortgage costs will therefore be less if you come up with 20 percent down and can avoid having to pay PMI.
What if you put down less than 20 percent? If you cant afford a 20 percent down payment, paying PMI may be your best option. And once you reach 22 percent equity in your home (or sometimes 20 percent equity with a good payment history), you can get your lender to cancel the insurance.
Another option available to you is securing an 80/10/10 loan. It enables you to avoid PMI by financing half of the required 20 percent down payment with a second mortgage. The way it works is that 80 percent of the purchase price of a home is financed through a first mortgage, 10 percent through a second mortgage, with the final 10 percent coming from the down payment. Or you can apply for a government insured FHA loan. This last alternative will still require you to pay for insurance, but in most cases a down payment of as little as 3 percent will suffice.
What about putting down no money at all? It is possible to finance 100 percent of the purchase price of a home with a mortgage that requires no down payment at all. The disadvantage of this type of financing is that you are likely to be charged a higher interest rate than that of a standard mortgage. This means your monthly mortgage payment will be higher. Also, because you didnt make the standard 20 percent down payment, you will have to pay PMI.
Let us look into other payment alternatives available to you. When trying to determine how much to put into the down payment, you should explore your various options in order to find a plan that will best suit your circumstances.
Q: Are you interested in gaining equity as soon as possible and thereby decrease your monthly costs? A: Then putting down 20 percent may be best for you.
Do you want to save on paying PMI costs but are unable to raise the 20 percent down payment? A: Then you may want to consider an 80/10/10.
Q: Can you only come up with a 3 percent or 5 percent down payment and dont want to wait to buy a home because you are concerned about rising house prices? An FHA loan secured from the government may then be your best course of action.
Q: Do you have no savings at all but are so eager to enter the real estate market immediately that you are willing to pay the extra costs involved in a no money down mortgage? You may be able to do this if you are fully confident in your ability to make the payments and to secure a better mortgage plan later on down the line. When going for this option however, it is important to assess your finances thoroughly with regard to how much down payment you are able to pay.