It wasn’t all that long ago when the Bank of Mom and Dad was a perfectly acceptable and normal way for first-time homebuyers to afford their new abode. But, times have changed. Many older people aren’t in a financial position to assist younger family members.
Today, the majority of first-time buyers have to figure out a way to afford their house or condo on their own. While making big bucks to cover the cost is always nice, a lot of would-be homeowners are looking for other solutions. Often these include a combination of personal savings, a low-down payment loan with mortgage insurance, seller-paid closing costs or a first-time homebuyer down payment assistance program.
Living beneath your means and saving isn’t just a good idea. It’s a great one. The practical application can seem difficult in our consumer driven world. But watching your expenses helps you ensure some of those dollars stick around for a rainy day or a down payment.
Down Payment Assistance
Even with the best of intentions, socking away enough dough for a 20% down payment can be difficult. Sometimes this even requires tens of thousands of dollars.
However, this doesn’t necessarily mean you’re destined to be a renter forever. For example, securing a loan insured by the Federal Housing Administration (aka an FHA loan) requires as little as a 3.5% down payment for eligible borrowers.
Additionally, private mortgage insurance (PMI) may also make it possible for would-be buyers to purchase a home with a small down payment.
Eyes Wide Open
Whether you’re using personal savings, down payment assistance or the Bank of Mom and Dad, it’s important to know what you can afford up front. Meeting with a lender to get a clear understanding of your financial options is key to your borrowing success.