You discover the city you want to live in for the rest of your life, and you decide it’s time to stop renting and begin owning your own home. Unfortunately, you don’t have the means to settle the down payment.
Most downpayment values are 20% of the property price, making this a large amount of money to shell out for a new home in a big and thriving city. If you wish to acquire your dream home and location, it shouldn’t be too difficult—all you need to do is plan well.
Here’s what you need to know about contemplating loan options for your home down payment:
Know the Initial Restrictions
It’s relatively uncommon to use a personal loan for a home down payment, primarily because your mortgage lender has restrictions. Mortgage lenders prefer that you use your own money instead of a loan for a down payment and may require you to submit documents demonstrating where your fund comes from.
Mortgage lenders like to be assured with the security that you have enough funds saved for a downpayment because this will show that you are financially responsible.
Reasons “Borrowing” Isn’t a Good Idea
When you “borrow” money, you are essentially taking out a loan. With a personal loan, however, you risk paying extra interest. Applying for a personal loan will lead to a complex investigation of your loan file and reduce your credit score and increase your debt-to-income ratio. In the end, interest rates will climb higher, or you will pay double than expected, or you may even be denied a mortgage request.
Additionally, it’s important to note that being a homeowner is expensive enough. More than purchasing a property, you have to consider property taxes, servicing, and repairs that could cost you thousands or more dollars a year.
If you haven't saved enough for a down payment at home, it is likely that you haven't saved enough for maintenance. If you have way too many monthly payments, this might leave you without enough liquid cash for emergencies.
Getting a Lowdown on Mortgage Payments
It's suggested that you pay for private mortgage insurance (PMI), a lender-covered insurance on top of your monthly mortgage payment. Typically, you may eliminate PMI when you get 20% equity in your house, although this depends on the conditions of your mortgage.
Fortunately, you can browse through more mortgage lenders and rates to check out the available down payment choices. Many lenders will still offer you fair or even lower down payment rates. An example of this is the “piggyback” 80-10-10 mortgages, which essentially decrease by 10% and then receive two loans, one for 80% of the purchase price and 10%. Even if you borrow money to fund the remaining 10%, you don't have to pay PMI.
Finally, make sure you study what type of special loans or grants are for particular scenarios. For veterans, you may claim a mortgage with no down payment or PMI via the U.S. Department of Veterans Affairs (VA). On the other hand, if you wish to acquire properties in rural regions, look at mortgages from the United States Department of Agriculture (USDA).
Sharpen Your Financial Intelligence with the Best Partner
Sharpening your financial intelligence is all about tracking your budget and saving up money. The more you can pay for a property upfront, the less mortgage assistance you’ll need. This means you will have less to worry about paying down payments, making your monthly dues, and having flawless personal credit.
Carefully contemplate taking out a personal loan before buying a property if it covers the difference between paying and not paying PMI. In such a situation, you may investigate whether your lender could finance you with a personal loan as part of the down payment, provided the piggyback loan is not a possibility.
Moreover, utilize a personal loan to get the lowest interest rate feasible and the most advantageous conditions, then make sure you shop with the most trusted lenders and never borrow more than you need so you can pay loans back faster.
Are you applying for small personal loans in Murfreesboro? Hometown Finance is a trusted lender that has valued strong customer relationships for 20 years and counting. We provide you with accessible installment loans no matter your past credit history, especially in times of need. Give us a call and inquire today!