Low Down Payment Properties

July 1, 2014 by  
Filed under Finance & Loans

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Many would-be homeowners don’t buy homes because they lack down payment funds. In some circumstances, the buyer can purchase a property with a lower down payment. It’s essential for the prospective homeowner to have good credit to make this strategy work.

Identification of these opportunities can require patience, but the rewards are substantial. Owning a home offers many financial rewards, including the opportunity to grow equity capital over time and mortgage interest deductions. Here are some thoughts about how to identify a low down payment opportunity:

Consult a Mortgage Broker

The low down payment buyer should evaluate a variety of loan programs offered by different lenders. A loan broker can assist the buyer by identifying good opportunities to buy real estate with a low down payment. Bring employment records, such as W-2 forms, bank statements, and credit reports from the three major credit reporting organizations (CROs). The buyer should have a good or better credit score, or a FICO score between 700 and 750.

Credit Errors and Resolution

Avoid starting the mortgage lender application process through a mortgage broker or with a lender if credit errors exist. Dispute any errors and present documentation to clear these problems from each or any of the CROs. Once the buyer’s credit profile(s) are accurate, meet with the mortgage broker or lender(s) to start the application process.

Mortgage Insurance

A low down payment of three to five percent requires the buyer to purchase mortgage insurance. This is an extra cost assessed to the homeowner each month. The lender asks a separate mortgage insurance company to underwrite this insurance to ensure that regular monthly mortgage payments are made.

Conclusion

Home sellers may offer to hold the buyer’s mortgage and offer beneficial down payment terms. Although these deals are rare, they do exist!

Kuba Jewgieniew is a data-driven professional who founded Realty ONE Group. Today, Realty ONE Group is one of the top ten brokerages in the USA.