Becoming a Homeowner: Step 2

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Saving and Seeking Assistance

When considering buying a home, it is important to know how much you can put toward the down payment. The down payment is a percentage of your home’s purchase price and the first major investment into your home. For many American homebuyers, the expense of out-of-pocket costs can often prevent renters from becoming buyers. On the upside, qualified low to moderate income homebuyers can take advantage of down payment assistance programs and loans with a low down payment.Becoming a homebuyer icon 2

Your down payment will help your lender determine how much you need to borrow and may impact certain factors such as:

  • Whether or not you will have private mortgage insurance (PMI), which generally happens if you pay less than 20% of home’s purchase price
  • Your interest rate
  • The type of loan you can qualify for

Loan-to-Value

Your lender will use your down payment to calculate your property’s loan-to-value ratio (LTV). Simply put, your LTV explains the value of your home after the down payment. Another way to look at it would be the ratio between unpaid principal and the home’s appraised value. The LTV, in addition to your financial history, helps lenders decide whether or not to approve your loan. Lenders generally require an LTV of 80% or less.

Private Mortgage Insurance (Conventional)

If your loan-to-value ratio is higher than 80% and taking out a conventional loan, lenders many require private mortgage insurance (PMI). When you borrow more money to purchase a home, PMI is put in place to lower the risk of loss for lenders. Although it may help your chances of buying a home, PMI can significantly increase the monthly payments.

Mortgage Insurance Premium (FHA Loan)

Homebuyers with an FHA loan can expect to pay at mortgage insurance premium if your down payment is less than 20%. The rate you’ll pay is based on your loan-to-value ratio and the length of the loan. Also, FHA decides whether your MIP is due “upfront” (UFMIP) at the time of closing or paid monthly. To learn more, visit HUD.gov.

Saving

Many families find it difficult to put aside money while keeping up with their monthly expenses. In an article published by the Washington Post, there are many ways to grow your savings account and increase your down payment. However, like most major life decisions, saving for a home involves some drastic changes.

  • Revise your budget and cut out the small purchases
  • Sell your car or swapping it in for a used model. A couple making two car payments should consider selling one to free up some extra money. Or swapping a newer car for used car that you can pay for in full.
  • Turn your hobby into a paycheck: Consider teaching music or sports lessons. Or find a job waiting tables or perhaps freelancing.
  • Make it automatic: See if you can have money automatically taken out of your paycheck directly deposited into your savings account.

Down Payment Assistance Programs in Florida

It’s important to keep in mind that the programs vary by region and a number of qualifying factors are used including occupation, income and ownership history.

State Housing Initiative Program (SHIP)- The state of Florida issues State Housing Initiative Program (SHIP) funding for down payment and closing costs assistance for very low, low and moderate income homebuyers. All applicants must the meet minimum income requirements. Please note, each county sets their own SHIP regulations. To find out more about SHIP funding in your area, contact your local Housing Development Division in your city or county.

Florida Bond Program- First time homebuyers using the Florida Bond Program can qualify to put as little as $1,000 towards a down payment or closing costs. Lenders require at least 3.5% as a down payment and must obtain a mortgage for the remaining 96.5% of the cost. Instead of paying all 3.5%, you only pay $1,000 and the program will pay for the remaining amount. In most cases, the Bond Program provides up to $10,000 for down payment or closing costs assistance.

Our next article is Step 3: Credit Score