Pensacola Real Estate Buyers take heart! It has been announced that some banks are offering mortgages with down payments as low as 5%! For those who do not have a lot of ready-cash on hand, this is fantastic news!
After the Real Estate Market tumbled, home buyers needed to come to the table with as much as 20% down or they had to turn to the Federal Housing Administration (FHA) for a low down payment loan.
For example, TD Bank’s “Right Step” mortgage, allows borrowers to secure a loan with a 5% down payment. It also allows them to receive as much as 2% of the sale price as a gift from a third party or a relative, so they would really only need 3% down.
Market opportunity seems to be driving this change of heart.
FHA dominated the market for loans with a low down payment during the housing market down turn. Taking on all those risky loans, however, depleted the reserve’s of the agency and has forced it to increase costs.
And this year, the FHA started requiring borrowers to buy private mortgage insurance (PMI) for the life of the loan. This is an expensive proposition, that has sent many borrowers looking elsewhere to secure a loan.
Private lenders, who have been leery of taking on these risky loans, are now willing to entertain them with rising home prices. It is making it less of a gamble. Plus, the banks think they can offer a better deal than FHA.
While the private lenders that are offering the 5% down loans are also requiring borrowers to buy PMI, they are only requiring them to do so until they build of 20% equity in the home.
The difference can end of being quite substantial! Paying an insurance premium over the life of a $200,000, 30-year fixed-rate loan from FHA that carries an effective mortgage rate of 4.4% (5.75% when you tack on the insurance premium), can add up to nearly $60,000 over the life of the loan.
Of course, home owners can refinance to end their FHA insurance, but rates are so low, that by the time an FHA borrower is able to refinance to a lower rate, it may not be worth it.
Please contact me here or directly at 850-393-7106, if I can help answer any questions or guide you through the home buying process.