Almost everyone dreams of one day owning their own home. But for some aspiring home buyers, pulling together the "necessary to qualify" 20 percent home mortgage down payment can be more than a little difficult. Fortunately, there are some options out there for those home buyers who struggle to gather together the full 20 percent. Just as with any aspect of a home mortgage, however, there are upsides and downsides to each of these options. And depending on the health of the credit markets at the time you are looking for a loan, lenders may be more or less willing to be flexible with the terms of the mortgage.
PMI (Private Mortgage Insurance)
Lenders usually like home buyers to put down at least 20 percent of the purchase price in order to qualify for a home mortgage with the most favorable terms. If you are unable to pull together that large of a down payment, you may be required to purchase Private Mortgage Insurance (PMI). In the case that you cannot pay your mortgage, this insurance will keep the lender from losing money.
Private Mortgage Insurance generally costs 0.5 percent of the purchase price of the property you are buying. If obligated to purchase PMI, the final costs of your home mortgage will be higher than they would otherwise. Happily, after you have built up a sufficient amount of equity in your home (20 to 22 percent), you can request to cancel the Private Mortgage Insurance.
Similar to this arrangement is an FHA loan, which is a loan insured by the government. If you get an FHA loan, it is possible to qualify for a home mortgage even if you have only three percent or more for a down payment. Because FHA loans are insured by the government there are specific criteria for qualification that can vary by county. To find out whether or not you might qualify for an FHA loan, speak to a loan officer or a mortgage broker.
80, 10, 10 Home Mortgages
Home buyers who do not wish to incur the expense of buying Private Mortgage Insurance have another option. This is called an 80/10/10 home mortgage. With this option, you will use a second home mortgage to finance part of the down payment. 80/10/10 works more or less like this: your first, larger mortgage will cover 80 percent of the cost of your home. You will take out a second mortgage to pay a down payment of 10 percent. The rest of the down payment, another 10 percent, you will need to pay on your own.
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