You Can Do It!! Part 2

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In my last post, we reviewed the fact that a high percentage of Americans want to own their own homes, and we looked at the first (“character”) of three primary criteria that lenders evaluate when underwriting loans.

The second important criteria you need to qualify for a mortgage is “capital.”  You must have some cash available to make a down payment.  The lender wants you to have some equity, some “skin in the game” when you purchase a new house; therefore, the requirement for a down payment.

But there are myths about down payments.  For example, a high percentage of recent survey respondents think that you must make a down payment of at least 20% to buy a house.  That is one big, FAT myth.  The TRUTH is that you can purchase a home with down payments as low as 3.5% for an FHA loan and 3% for a conventional loan.

Now keep in mind that, with conventional loans, larger down payments can earn you a better interest rate and a better premium on your mortgage insurance.  But you can obtain a mortgage with the low down payments mentioned above, you will just pay a little more for your lower down payment.

You will need to provide bank statements showing that you have the cash available for your down payment and the other cash you will need to close your loan – things like closing costs and prepaid escrow items.  In some cases, you may have to show “reserves,” extra cash available to cover future mortgage payments.

You can get these funds from your bank account, investment accounts, gifts from relatives, and, in some cases, you can borrow funds from retirement accounts (e.g., 401K).  Your Realtor can also negotiate for the home seller to contribute cash to help cover the closing costs and prepaids.

We’ll look at “capacity” and myths related to it in my next post.  But for now, if your credit score is 620 or higher, you have enough cash for a 3% or more down payment, and you want to buy a house, just remember, “You can do it!”  If you dream of owning your own home in the state of Georgia, give me a call and let’s discuss it.  Don’t believe the myths.  We might be able to get you into your dream home sooner than you think.

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