Buying a home with a small down payment (3%)
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Anonymous
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I would like to buy a house, but I only have about $15,000 to use for a downpayment. My rent is really high and it is preventing me from saving as much as I would like toward a traditional 20% downpayment, and I feel like I will never get there. I'm tired of throwing away money on rent and not getting any closer to my goal. Last time I checked, my credit score was excellent and I have almost no debt ($5K loan).
What are the next steps? How do I find a lender for a 3% downpayment home loan? I've read that it's best to avoid FHA if possible, so I would like to try to find a conventional loan. Also, are there any programs to help first-time home buyers either in DC or MD? Do you have experience buying a home with only a 3-5% downpayment? What did you learn? TIA! |
Anonymous
| We did this with a FHA loan. Not sure why you want to avoid. In our experience it was good. |
Anonymous
| Well, you'll need more than 15,000 for even a 3% downpayment, unless you can find a listing where the sellers pay your closing costs. In this market, that's a bit of a pipe dream. |
Anonymous
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How about adjust your expectation, because there is clearly something wrong it your math.
15K downpayment eguals at least $3K/month minimum Do you pay more than that for rent and can afford it - than rent something cheaper and save-save-save. I'm pretty sure that there should be cheaper options around. If you pay less for rent and can save - how in the world you planning to pay for mortgage? |
Anonymous
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/\/\
can't save (for downpayment I mean) |
Anonymous
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An FHA is really your only option, but the person who told you to fear FHA loans was probably saying that based on very out of date advice. Their only major downside is you need to pay PMI but you're going to need to do that with just about any below 20% down loan product still on the market.
If you really have only 15,000, you do need to be realistic about what you can afford, though. For one thing, the max purchase price might not be as high as you think it can be, for two reasons: a) the minimum down is 3.5, not 3. So if you're thinking you can take out a 500,000 loan, it's more like 428,000; and b) you won't be able to afford to pay both closing costs up front and your down payment so you'll need to build the closing costs into the loan amount, which decreases the max purchase price further. For another thing, you need to add in PMI to your estimated monthly payment to see how it really compares to renting. I would run the numbers for your monthly payment including PMI on a $400,000 place (if you want to spend that much) and see how that number compares to renting a similar place before concluding that you should not save further. |
Anonymous
I think it's more like $2,500. It is at least plausible to me that someone living on, say, U Street could be choosing between buying a place that costs 425,000 or renting a slightly larger place that costs close to 2,500. (But yeah I share your skepticism that OP is financially ready to buy). |
Anonymous
| OP, I think it would be helpful if you tell us how much you make, and how much you pay in rent. also, is $15K all you have? as others have told you, you need to buy closing costs, which I think are about 3% of the purchase price. also, and this is really important, when you rent, the rent is your only expense. when you own, you have maintenance costs that are not negligible, and can be unpredictable. when we bought our home, the after two weeks of turning the heat on the furnace broke (beginning of long weekend with 20 degrees outside). we had to pay $7500 for a new furnace. so not only you need savings as a safety net, you also need a budget for yearly expenses on the house (a condo may be less, but you pay condo fee on top of mortgage). also, are you sure you cannot save in rent? if you do not have kids (so no schools issue and do not need space), maybe sharing a place in less desirable areas in DC and outside would save you a lot |
Anonymous
| Buying a place and renting out a room is another option. We rented out a furnished room for about $600 mo for a couple years after buying in DC. |
Anonymous
Its easy enough to solve the closing costs problem by offering the sellers 3% above your "real" offer while insisting on closing costs. But this does decrease the size of house that OP can purchase. |
Anonymous
Well, 15K is 3% out of 500K, so there is no way you can get $2.5K PITI & PMI for $485K 97% LTV loan |
Anonymous
That assumes the property will appraise. |
Anonymous
| it may be hard to get your offered excepted with an FHA or VA loan because they often require stricter closing rules and apparisals |
Anonymous
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any chance you are eligible for a VA Loan? It allows for very flexible down payments (we had the option of zero down, although in the end we did 10%).
You don't have PMI, but I believe there is something called a "funding fee" (I think that was the term?) that is their version of PMI. It's sort of an upfront PMI - You can roll it into the total loan, though. The only word of warning I have for you is that we didn't realize how strict banks were being with Home Equity Lines these days. We bought a bigger house that we knew needed updates and did some of them upfront with the extra money from the sale of our previous property. That money ran out, and a year in, we had to do a roof, gutter and attic repair. No one would give us a home equity line even with great credit. We could have drained savings for it, but preferred not to, so we used 0% offers on our credit cards for most of it and waited it out for our home value to increase some more and to pay down a little more of the mortgage amount. We wound up finding a credit union willing to work with us (Fairfax CU) and will be closing on that any day now. |
Anonymous
| We did an FHA and it's been fine -- can't wait to lose that PMI but otherwise it was our only option. Got us into a great house. |