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It’s a phrase you’ll hear often coming from today’s home renters: “I would love to own my own home, but I just can’t afford the down payment!” It doesn’t matter how high your credit score is, or how much money you bring home in your paycheck — saving up a large enough sum of money to put down on a piece of real estate is no small feat. It takes patience, careful planning, and more than a little discipline with your personal finances. When you factor in today’s rising home prices, many feel that coming up with a down payment on a new home is at best a long-term goal, if attainable at all.
But the truth is, home ownership may be more within reach than you think. Let’s start by dispelling some myths surrounding the dreaded down payment:
MYTH #1: It Starts at 20%.
Flat-out FALSE. It is a long-standing misconception that you need to put no less than 20% of the home sale price down, in order to receive financing. The notion has been around for so long that, according to a 2019 study by NerdWallet, more than 6 in 10 Americans (62%) believe this to be true.
While an upfront payment of 20% will allow you to secure a loan without mortgage insurance, you can actually get home financing today with as little as 1% down, depending on the loan program. In fact, if you are in the military, or live in certain designated rural areas, you may even be able to get a loan with no money down at all, if you meet certain criteria. Talk to your d’aprile properties agent, and allow them to refer you to a mortgage professional who can steer you toward the right loan product for your personal financial situation.
MYTH #2: Cash Will Win Out Every Time
Half truth. We live in a competitive housing market, and oftentimes a solid home in a sought-after neighborhood will often receive multiple offers. The belief out there is that a cash buyer will always win a bidding war over a first-time home buyer, because they are guaranteed to close on time, with no potential hurdles to their home financing situation. This is not always true; in fact, it is not uncommon for a first-time home buyer to win a bid over a cash bidder, depending on the seller’s individual situation.
Sometimes, the seller may not be in a hurry to sell, and a first-time home buyer may be able to persuade them with a higher bid. Also, consider the fact that many sellers go through a rather emotional experience when saying goodbye to their home — a sincere, hand-written letter from the buyer may resonate with the seller, giving them a leg up on an all-cash offer.
MYTH #3: Lenders Frown Upon Gifted Down Payment Funds
False. The truth is, it is perfectly legal to be gifted the money for a down payment by a family member. If your parents or grandparents have the means, almost any lender will allow them to provide you with payment assistance. It just has to be done the right way — and there will be extra paperwork involved. First, it has to truly be a gift, with the donor providing a signed letter stating that the funds do not have to be paid back. Second, the donor must of course prove that they have the necessary funds to provide such a gift, so they should be prepared to have their finances inspected. Finally, gifted funds have no effect on the underwriting process. You’ll still need to have good credit, and be able to prove that you have the financial means necessary to pay your mortgage once you close.
In the end, while they may take a few extra steps on your part, there are many ways for someone short on cash reserves to make a solid down payment on a home. The key is to determine your home buying power BEFORE you begin your home search. After all, no amount of expertise on the part of your real estate agent will help if you aren’t financially prepared to make an offer. Be sure to talk to your d’aprile properties agent, and let them introduce you to their trusted mortgage pro, who will let you know in confidence if the time is right for you to buy.