As the COVID-19 pandemic continues to wreak havoc on the U.S. economy it’s important to make smart choices regarding your finances. There is something to be said for spending less and saving more during heightened periods of volatility. Do This Before Choosing a Mortgage Lender in Denver.
However, building a nest egg shouldn’t prevent you from also hitting key financial milestones such as
- Having Kids
- Getting Married
- Purchasing Your First Home
Good demographics and record low mortgage interest rates are fueling demand for housing, but many new borrowers’ question if they can even afford a home as home prices continue to climb. You also might be uncertain if the timing is right.
While a down payment may seem like a large obstacle to overcome, the truth is that many Colorado mortgage lenders offer a variety of mortgage solutions that can help you overcome the burden of forking over thousands to buy your new dream home.
So how do you buy that quiet suburbia townhome or picturesque, rural cottage without breaking the bank? Here are the three best-kept secrets that Colorado Mortgage Lenders can use to help you buy a home for less money down.
Affordable Mortgage Programs
Most borrowers believe the common misconception in that you have to put down at least 20% of the purchase price of a home. In reality, most lenders will now allow you to put far less than 20% down.
The catch is that if you do put less than 20% down and you owe more than 80% of what your home is worth, you will then most likely be subject to private mortgage insurance.
Private mortgage insurance is insurance that protects the lender in the event you default on your loan. As the borrower, you pay either a monthly (or sometimes single) premium to maintain this protection for the lender.
The thing to keep in mind is that private mortgage insurance is cancellable, meaning that you can get rid of it early (in some cases) or after a set period of time it simply goes away.
Some government-backed mortgage programs also charge mortgage insurance that is non-cancellable, so make sure you discuss what program is best suited for your situation.
Depending on what conventional mortgage solutions your Colorado mortgage lender offers, you might only have to put somewhere between 3% to 5% down.
FHA mortgage programs allow some borrowers to put as low as 3.5% down on the purchase of a new primary dwelling as well. You might even qualify to put no money down if you are eligible for certain VA or USDA programs.
Piggyback Second Mortgages
If you have minimal debt and strong monthly income but are just short on cash on hand, a piggyback second mortgage might be the solution for you.
Piggyback or combination second mortgages are becoming increasingly more common today as home prices incrementally rise and jumbo mortgage providers remain slow to revamp production.
Essentially, your Colorado mortgage lender will structure your purchase financing as two loans instead of one.
Normally the first mortgage is set at the maximum conforming mortgage loan limit. The second loan will then make up part of the deficiency between the first mortgage amount and the purchase price.
While the amount you can qualify for depends on your Colorado mortgage lender the typical max combined loan to value is between anywhere from 85-90%, which may be far less than if you financed your purchase with a single conforming conventional mortgage. Keep in mind there will be two liens placed on your home.
Personal Gifts and Down Payment Assistance
If you cannot afford a large down payment consider seeking the assistance of a family member. Colorado mortgage lenders will allow you to use gifted funds to go towards the purchase of a new primary dwelling. The funds can be used to cover your down payment or even closing costs.
Another avenue your lender might suggest is exploring down payment assistance programs available at the county or state level. Many countries offer down payment assistance programs to home buyers that meet certain eligibility criteria.
The assistance might come in the form of a grant (doesn’t have to be repaid) or an affordable second mortgage with the ability to defer payment, or pay back the sum at a low or zero percent interest rate.